23 Jun Assume that you are a member of the Hershey Trust
Assume that you are a member of the Hershey Trust board. To whom (or what) do you owe your fiduciary responsibility? How does the legacy of Milton S. Hershey affect your thinking as a member of the board?
2 Is diversification a valid reason to sell HFC? How would such diversification have served the Hershey School 10 years ago, for example? What are the pros and cons of this strategy?
3 Which, if any, bid would you vote to accept for the purchase of Hershey Foods Corporation? Is your decision primarily based on the economics of the bids or the desire to honor the legacy of Milton S. Hershey? The group does need to come to a “final” decision or recommendation with respect to this, but I expect that you will present different points of view in your write-up.
4 If you decided to reject both bids and not sell HFC, what will you do to achieve the diversification objective? If you decided to accept one of the bids, what (if anything) would you want to communicate to the constituents who opposed the sale?
Target Corporation
1. Describe and critique Targets capital-budgeting system. Give specific consideration to the role of the real-estate managers and the makeup of the CEC.
2. Which of the five CPRs should Doug Scovanner accept? Explain how each of the considerations that follow influenced your decision:
a. NPV and IRR
b. Size of the project
c. Cannibalization of other stores sales
d. Store sensitivities
e. Variance to prototype
f. Customer demographics
g. Brand-awareness impact
3. Why does Target use different hurdle rates for the store and the credit cards (9% and 4%, respectively)? What process would you use to estimate these discount rates to see if they are reasonable? Please be specific.
4. As members of the CEC, would you continue to approve CPRs if it meant that Target would need to fund the requests with external funds, either debt or equity? Why or why not? 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.
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. Wrigleys outstanding shares?
b. Wrigleys 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 Wrigleys current (prerecapitalization) weighted-average cost of capital (WACC)? (requires computation)
4. What would you expect to happen to Wrigleys 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 Wrigleys 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?
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