Blanka dobryn intends to use the active investor strategy to identify the opportunities in the existing corporations, restructure them, and earn large returns from investing in the same companies through mergers and acquisitions.

Question one

Blanka dobryn intends to use the active investor strategy to identify the opportunities in the existing corporations, restructure them, and earn large returns from investing in the same companies through mergers and acquisitions.

Question two

1. Loans require to be serviced back, the interest charged on the value increases as time passes. Thus loans hinder the growth of the company. This implies that the share price might reduce in value.
2. The additional capital will increase the owners’ equity in the company, but this might reverse in times when the loan is being serviced. The company assets and equity will reduce at the time when the company is servicing the loan.
3. The price per share of the Wrigley Company will reduce since additional external capital is expensive for the company.
4. The earning per share will reduce since a portion of the net profit will be spent on serving the acquired debt. This will make it expensive for an investor to invest in the company.
5. The debt interest ratio will increase so as to service the debt sourced. Additionally, the company will lose financial flexibility in the course of operations.
6. The Wrigley will lose some voting controls since some decisions will require the consent of the creditors. This because they are part of the contributors to the capital.

Question three

The current pre-recapitalization will consist of

WACC= E/ V * RE + D/V – (1 – T), Tax= 31%, return= 13%

= 1765648/ 3001765648 * 0.13 + 3000000000/ 3001765648 *(1-0.31)

0.000765 + 0.689594139 = 0.69035 * 100 = 69.04%

The company pays 69% for every dollar that it receives from external financing, this is too expensive for the firm to rely on.

Question three

The capital structure of the company will change extremely, implying that the company will have a large allocation of the debt in the capital structure. So as to accommodate the 3billion debt. Servicing the debt will involve huge interest payments, thereby lowering the profits generated for the company. When the funds are invested in the company, there will be huge returns generated from the investment undertaken. Therefore the earnings per share will increase due to the increased revenue. If these funds are used to pay dividends to shareholders, the dividends advanced to the shareholder will be high. Thus the cost of equity will gain in value when calculated, implying that the resulting value of the weighted average cost of capital will be lower.

Question four.

No, the recapitalization request might seemingly look good and attract huge returns to the company. But at the same time, care should be taken to ensure that the social cost of the stakeholders involved is considered. Recapitalization involves the restructuring of the available capital. This may involve reducing the labor supply and consumption of other relevant materials involved in the production process. This will result in the unemployment of a group of employees and key stakeholders in the sector. From an economic point of view, a good investment should create value for the investors involved and, at the same, create job opportunities. This will help to reduce the conflicts between the investors and the employees. Additionally, restructuring will involve the loss of company key departmental decisions like voting rights and decision making. Thus this will lead to unprecedented disclosures that might ruin the reputation of the company.