Case
GSBA521B Term III, Fall 2012
Professor Ku
Case—Blaine Kitchenware, Inc.: Capital Structure
Assignment: Your team’s task is to recommend to the Board of Blaine Kitchenware (BKI) whether the firm should undertake the leveraged recap. In doing so, please address the four questions below. Teams 1-6: your task is to recommend for a leveraged recap with quantitative and qualitative support Teams 7-13: your task is to recommend against a leveraged recap with quantitative and qualitative support Along with a signed copy of the Marshall Honor Code, submit a hard copy case report of one-page, single-spaced executive summary, summarizing your analysis and recommendation(s), followed by up to five-page legible appendices of supporting calculations, analyses and reference. Note: An excel file with case exhibits 1-4 has been posted on Blackboard. You can only use this file (which contains copyrighted materials) for our class purposes and you may not copy or post the file on any other medium. Objective: This case is designed to provide you with the opportunity to apply financial analysis to critical financial decisions. We will apply various capital structure and payout theories to a leveraged recap decision by 1) examining issues involved in determining the appropriate capital structure, especially as it applies to enterprise and equity valuation; 2) analyzing the impact of the leverage on the weighted average cost of capital of the firm. You might find Chapters 3, 4, 7, 12 and 14-16 of our text useful. Possible concepts used: EFN, growth rates, financial ratios, financial leverage, MM propositions and tradeoff theory, pecking order theory, agency cost theory, share repurchase, special cash dividends, enterprise value, debt and equity value, WACC, cost of debt, cost of equity as well as the CAPM. Questions: 1. Is Blaine Kitchenware, Inc. financially sound? In particular, is the firm profitable? What is the firm’s sustainable growth rate? How is the company currently
Professor Ku
Case—Blaine Kitchenware, Inc.: Capital Structure
Assignment: Your team’s task is to recommend to the Board of Blaine Kitchenware (BKI) whether the firm should undertake the leveraged recap. In doing so, please address the four questions below. Teams 1-6: your task is to recommend for a leveraged recap with quantitative and qualitative support Teams 7-13: your task is to recommend against a leveraged recap with quantitative and qualitative support Along with a signed copy of the Marshall Honor Code, submit a hard copy case report of one-page, single-spaced executive summary, summarizing your analysis and recommendation(s), followed by up to five-page legible appendices of supporting calculations, analyses and reference. Note: An excel file with case exhibits 1-4 has been posted on Blackboard. You can only use this file (which contains copyrighted materials) for our class purposes and you may not copy or post the file on any other medium. Objective: This case is designed to provide you with the opportunity to apply financial analysis to critical financial decisions. We will apply various capital structure and payout theories to a leveraged recap decision by 1) examining issues involved in determining the appropriate capital structure, especially as it applies to enterprise and equity valuation; 2) analyzing the impact of the leverage on the weighted average cost of capital of the firm. You might find Chapters 3, 4, 7, 12 and 14-16 of our text useful. Possible concepts used: EFN, growth rates, financial ratios, financial leverage, MM propositions and tradeoff theory, pecking order theory, agency cost theory, share repurchase, special cash dividends, enterprise value, debt and equity value, WACC, cost of debt, cost of equity as well as the CAPM. Questions: 1. Is Blaine Kitchenware, Inc. financially sound? In particular, is the firm profitable? What is the firm’s sustainable growth rate? How is the company currently