Hershey Foods Corporation: Bitter Times in a Sweet Place

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Hershey Foods CorporationBitter Times in a
Sweet Place
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Milton Hershey and Hershey, PA
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Hershey, PA, Today
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The Milton Hershey School
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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

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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

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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/(8455884.9) 9.47
• E/V 8455/(8455884.9) 90.53

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Hershey WACC

• WACC RE(E/V) RD(1-T)(D/V)
• 8.36(.9053) 3.47(.0945) 7.90