Questions In 2007 California Pizza Kitchen was experiencing record growth and profits‚ however‚ their stock price experienced a 10% drop. Up until this time CPK had avoided taking on debt‚ but with this stock dip management is considering a stock repurchase program. CPK had practiced conservative fiscal policy to ensure “staying power;” but with interest rates set to rise and competition falling behind‚ this could be the perfect time to take on more risk. With this in mind‚ CFO Susan Collyns is considering
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no debt and 500 million shares outstanding with a current market price of $15 per share. Natsam’s board has decided to pay out this cash as a one-time dividend. a. What is the ex-dividend price of a share in a perfect capital market? The payoff for the dividends would be $250/500 = $.50 per share. Therefore‚ the price for the shares would go down by that amount and would then be $14.50. b. If the board instead decided to use the cash to do a one-time share repurchase‚ in a perfect capital market
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Stockholder ratios such as earnings per share and return on common equity provide information about the creation of value for shareholders. The value is distributed to shareholders in one of two ways. Either the corporation issues dividends or repurchases stock. The remainder of the stockholder ratios—dividend yield‚ dividend payout‚ stock repurchase payout‚ and total payout—address this distribution of value. • Earnings per Share (EPS) Earnings per share ratio‚ or EPS‚ measure the income available
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Shareholders 4 Source of Value Creation 4 Effects on Value per Share 5 The Benefits of Leveraging for the Shareholders 6 The Macroeconomic Benefit of Debts 7 Koppers Company‚ Inc. 7 Case 30 – MCI Communications‚ Corp.: Capital Structure Theory 9 Introduction 9 Cost of Capital 9 Costs of Equity 9 Cost of Debt 10 WACC 10 Scenario Analysis 11 Leverage and Risk – Coverage Ratio 11 Leverage and Earnings – Earnings per Share 12 The Creditor’s Reaction 14 Impact on Financial Flexibility 15
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halted expansion of this in order to focus on international development of its main restaurant. With the recent 10% share price decline‚ CPK management considers if it would be an ideal time to repurchase shares and potentially leverage the company’s balance sheet with its existing line of credit. In order to continue to fund strong expansion‚ it is considering repurchasing shares and will need to use debt financing to pursue this. Since going public the company has avoided using debt to finance
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are appropriate? Why or why not? 2) Should Dubinski recommend a large share repurchase to Blaine’s board? What are the primary advantages and disadvantages of such a move? 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 an interest rate of 6.75% to repurchase 14 million shares at a price of $18.50 per share. How would such a buyback affect Blaine? Consider the impact on‚ among other
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payout policy in the sense that they started with announcing dividends and then continued onto repurchasing. Linear started dividends to gain the respect of investors as well as show that buying shares in the company of Linear was less risky than all the other technology companies. Additionally‚ they repurchase stocks to offset the employee stock options that the company had as a large component of the employee compensation‚ which helped Linear in the years of low or slow sales. As stated in the case
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formulating a dividend policy. G O A L S LG4 Review and evaluate the three basic types of dividend policies. LG5 Evaluate stock dividends from accounting‚ shareholder‚ and company points of view. LG6 Explain stock splits and stock repurchases and the firm’s motivation for undertaking each of them. Across the Disciplines WHY THIS CHAPTER MATTERS TO YO U Accounting: You need to understand the types of dividends and payment procedures for them because you will need to record and
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well-performing Small Cap and Mid Cap companies‚ a reasonable level of debt in a given company capital structure helps lower the cost of capital partly‚ due to tax reduction. I would recommend that Dubinsky proposed a large share repurchase to the board. This share repurchase proposal should be presented to the founders’
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Dubinski recommend a large share repurchase to Blaine’s board? What are the primary advantages and disadvantages of such a move? 3) Consider the following share repurchase proposal: Blain 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 418.50 per share. How should such a buyback affect Blaine? Consider the impact on‚ among other things‚ BKI’s earnings per share and ROE‚ its interest
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