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Hershey Foods Corporation: Bitter Times in a Sweet Place

Hershey Foods Corporation: Bitter Times in a Sweet Place. Milton Hershey and Hershey, PA. Hershey, PA, Today. The Milton Hershey School. Hershey Cost of Equity. Hershey  = 0.55 Since value is over a long horizon, might want to use a l.t. risk-free rate (=4.73%)

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Hershey Foods Corporation: Bitter Times in a Sweet Place

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  1. Hershey Foods Corporation:Bitter Times in a Sweet Place

  2. Milton Hershey and Hershey, PA

  3. Hershey, PA, Today

  4. The Milton Hershey School

  5. Hershey Cost of Equity • Hershey  = 0.55 • Since value is over a long horizon, might want to use a l.t. risk-free rate (=4.73%) • Historical risk premium over l.t. govts. = 6.6% • RE = 4.73 + .55(6.6) = 8.36%

  6. Hershey Cost of Debt • Yield on long-term Hershey bonds is currently 5.73% • Hershey Tax Rate = 39.5% (inferred from Exhibit 10) • RD(1-T) = 5.73(1-.395) = 3.47%

  7. Hershey Capital Structure • Market value of equity = # shares x pre-announcement price = 134.2 x 63 = 8455M • Book value of debt = 884.9 M (not enough info. to adjust to mkt. value) • D/V = 884.9/(8455+884.9) = 9.47% • E/V = 8455/(8455+884.9) = 90.53%

  8. Hershey WACC • WACC = RE(E/V) + RD(1-T)(D/V) = 8.36%(.9053) + 3.47%(.0945) = 7.90%

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