1.Adjusted present value approach

What will be the effects of issuing $3 billion in debt and using the proceeds to pay a one-time dividend or to repurchase shares? Assume that the value of the levered firm is equal to the value of the unlevered firm plus the present value of tax shield, less the bankruptcy costs, plus other benefits.

Where, is the value of the levered firm,is the value of the unlevered firm, is the corporate tax rate, and D is the market value of debt.

Assume that the debt is perpetual (i.e., the Company will have $3 billion in debt always in the future). Ignore PV(bankruptcy costs) and PV(benefits due to factors such as signaling, incentives for managers, and clientele effects).

a.Wrigley's book and market value of the firm?

b.The price per share of Wrigley's stock?

c.EPS?

d.Voting control by the Wrigley family?

e.Provide a qualitative discussion of the bankruptcy costs and benefits due to signaling, incentive, and clientele that are not included.