equity. Our extensive evaluation of the possible outcomes has revealed that borrowing $3 billion to either pay out an equivalent dividend‚ or continue with a share repurchase could positively affect many aspects of your company. This capital restructure could improve your firm’s share value‚ cost of capital‚ debt coverage‚ earnings per share and voting control. Please refer to our analysis below and in the attached excel spreadsheet for consideration. Using Debt to Maintain Dividend In order to
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ranks behind the firm’s general creditors in the event of default‚ the loan is said to be SUBORDINATED. d. In many cases‚ a firm is obliged to make regular contributions to a(n) SINKING FUND‚ which is then used to repurchase bonds. e. Most bonds give the firm the right to repurchase or CALL the bonds at specified prices. f. The benchmark interest rate that banks charge to their customers with good credit is generally termed the PRIME RATE. g. The interest rate on bank loans is often tied to short-term
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could be viewed by Stockholders positively‚ as they would experience a higher return on their investment. The only issue the stockholder might have would be the taxes on the additional dividend distributed. Especially for those that own 25% of the shares if the entire $30 million is distributed. It is also important to note that offering extra cash dividends to stockholders does not necessarily improve the company’s stock performance. In other words the one time dividend will not affect stock prices
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dilution‚ Journal of Financial Economics 15‚ 61-89. Baker‚ M. and J. Wurgler‚ 2002. Market timing and capital structure‚ Journal of Finance 57‚ 1-32. Baker‚ M. and J. Wurgler‚ 2000. The equity share in new issues and aggregate stock returns‚ Journal of Finance 55‚ 2219-2257. Bartov‚ E.‚ 1991. Open-market stock repurchases as signals for earnings and risk changes‚ Journal of Accounting and Economics 14‚ 275-294. Bayless‚ M. and S. Chaplinsky‚ 1996. Is there a window of opportunity for seasoned equity issuance
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Blaine Kitchenware Inc‚ was founded in the year 1927 and is a mid-size player in production of branded appliances. It is a public limited company but is closely held company as most of the shares are held by family members. It has a decent market share of 10% of the overall industry size of USD 2.3 million. Upon analysis of current financial policy of the organization it is evident that Blaine Kitchenware is very conservative in its financial policy. Company has never borrowed debt‚ it is cash rich
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Stock Repurchase Repurchase of stock can be viewed in each of the following way: investment‚ financing‚ shareholder distribution and control issue. Repurchase of stock can be a way to use firm’s excess debt capacity. By doing so‚ firm can lower the cost of equity financing. If debt financing is more flexible and cheap‚ replace equity financing with debt financing is a good way to lower the weighted cost of capital. In this sense‚ such action is a financing issue because it controls the cost of
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decisions that need to be made. Her two primary issues are how to finance expansion and the firm’s most appropriate capital structure. The focus of this analysis will be on the change in capital structure through the repurchase of shares at today’s market price of $22.10. The effect of the repurchase will be analyzed from an EBIT breakeven‚ ROE‚ EPS‚ Cost of Capital‚ and stock price perspective. It should be noted that there is an $85 million cost to fund further expansion of their full service restaurants
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units a year. There were three major segments in the small kitchen appliance industry: food preparation appliances‚ cooking and beverage making appliances but Blaine’s maximum revenue came from cooking and food preparation appliances and its market share in beverage making appliances is only 2%. In 2006‚ Blaine had suppliers and contract manufacturers in China‚ Vietnam‚ Canada and Mexico. BKI’s market research consistently showed that the Blaine brand was well-known and well-regarded by consumers.
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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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