Fonderia di Torino (Individual Case Analysis)

Fonderia di Torino (Individual Case Analysis)
There is no data file for this case, your will need to estimate the cash flows using financial forecasting and modeling. You need to compute and develop the cash flow forecasts. Remember that your analysis should ultimately the incremental cash flows provided by the new Vulcan Mold-Maker machine.
Fonderia di Torino (Individual Case Analysis)
Wm. Wrigley Jr. Co.

1. What is Blanka Dobrynin hoping to accomplish through her active-investor strategy?

2. What will be the effects of issuing $3 billion of new debt and using the proceeds either to pay a dividend or to repurchase shares on each of the following: (Note: the impact may be different if a dividend is paid or a repurchase is done.)

a. Wrigley’s outstanding shares?

b. Wrigley’s book value of equity?

c. The price per share of Wrigley stock?

d. Earnings per share?

e. Debt interest coverage ratios and financial flexibility?

f. Voting control by the Wrigley family?

3. What is Wrigley’s current (prerecapitalization) weighted-average cost of capital (WACC)? (requires computation)

4. What would you expect to happen to Wrigley’s WACC if it issued $3 billion in debt and used the proceeds to pay a dividend or to repurchase shares?

5. Should Blanka Dobrynin try to convince Wrigley’s directors to undertake the recapitalization? The group does need to come to a “final” decision or recommendation with respect to each of these, but I expect that you will present different points of view in your write-up.
You may assume that the semi-automated equipment could be operated for two additional years beyond the end of its depreciable life thanks to ordinary maintenance. Thus, the lives of both the semi-automated and Vulcan Mold-Maker alternatives will be eight years.

1 Assess the economic benefits of acquiring the Vulcan Mold-Maker machine. Specifically, what is the initial outlay? What are the benefits (annual cash flows) over time? What is an appropriate discount rate? Does the NPV warrant investment in the machine? How sensitive is the investment decision to the assumptions that you have made?
2 Please discuss the uncertainties and qualitative considerations that might influence your recommendation(s).