You are asked to determine Wrigley's cost of capital if it adopts a conservative capital structure involving a debt of $1 billion (with all the money raised paid out to shareholders so as to hold constant the total capital invested in the company). Assume that at this leverage, Wrigley's debt will be rated BBB, and note that capital market conditions:

a.Determine Wrigley's asset beta, basing your answer on the information provided in Exhibit 5 of the case for Wrigley itself and for the three peer companies for which a beta estimate is available.

b.What is Wrigley's equity beta going forward? 

c.What is Wrigley's cost of equity under the proposed capital structure? (use the equity market risk premium suggested in the case text)

d.What is Wrigley's WACC under the proposed capital structure, assuming a 40% tax rate?

Answer rating: 100% (QA)

a To determine Wrigleys asset beta we need to take a weighted average of the unlevered betas of Wrigley and the three peer companies Using Exhibit 5 o... View the full answer