Blaine Kitchen Ware
FIN475
Spring 2011
Group Assignment 3
“Blaine Kitchenware, Inc.: Capital Structure”
Due: Thursday, March 24, 2011
Instructions: • This is a group assignment. • Prepare a memo from your group to address the items found below. Please limit your memo to no more than three pages of text. You may use as many pages of exhibits as you deem necessary. However, you will only want to provide exhibits that you discuss in your memo. • Presentation counts. Make sure to proof you memo for spelling, grammar, etc.
Address the following items in your memo:
1. Do you believe Blaine’s current capital structure and payout policies are appropriate? Why or why not? Be as specific as possible.
2. Should Dubinski recommend a large share repurchase to Blaine’s board? What are the primary advantages and disadvantages of such a move? Again, be specific.
3. Consider the following share repurchase proposal: Blaine will use $209 million of cash from its balance sheet and $50 million in new debt-bearing interest at the rate of 6.75% to repurchase 14.0 million shares at a price of $18.50 per share. How would such a buyback affect Blaine? Consider the impact on, among other things, BKI’s earnings per share and ROE, its interest coverage and debt ratios, the family’s ownership interest, and the company’s cost of capital.
4. As a member of Blaine’s controlling family, would you be in favor of this proposal? Would you be in favor of it as a non-family
Spring 2011
Group Assignment 3
“Blaine Kitchenware, Inc.: Capital Structure”
Due: Thursday, March 24, 2011
Instructions: • This is a group assignment. • Prepare a memo from your group to address the items found below. Please limit your memo to no more than three pages of text. You may use as many pages of exhibits as you deem necessary. However, you will only want to provide exhibits that you discuss in your memo. • Presentation counts. Make sure to proof you memo for spelling, grammar, etc.
Address the following items in your memo:
1. Do you believe Blaine’s current capital structure and payout policies are appropriate? Why or why not? Be as specific as possible.
2. Should Dubinski recommend a large share repurchase to Blaine’s board? What are the primary advantages and disadvantages of such a move? Again, be specific.
3. Consider the following share repurchase proposal: Blaine will use $209 million of cash from its balance sheet and $50 million in new debt-bearing interest at the rate of 6.75% to repurchase 14.0 million shares at a price of $18.50 per share. How would such a buyback affect Blaine? Consider the impact on, among other things, BKI’s earnings per share and ROE, its interest coverage and debt ratios, the family’s ownership interest, and the company’s cost of capital.
4. As a member of Blaine’s controlling family, would you be in favor of this proposal? Would you be in favor of it as a non-family