Hershey Foods Corporation: Bitter Times in a Sweet Place

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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%) Historical risk premium over l.t. govts. = 6.6% RE = 4.73 + .55(6.6) = 8.36%

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%

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%

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

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