They always appreciate well written memos that make appropriate use of correct grammar and spelling. Effects of share repurchase on assets, liabilities and equity Blaine kitchenware case balance sheet Decrease in contributed capital is million dollars 14 mil.
In contrast to it, the debt ratio would be increased by reduction on the equity side. In the meantime, current payout policies make payout ratio go up, lowering efficiency of the firm. Otherwise, the write-up is considered late and will not be graded.
In other words, Blaine does not fully utilize its funds. The partial income statement is stated in Exhibit Blaine kitchenware case. Dubinski knew the family had no current interest in selling—on the contrary, Blaine was interested in acquiring other companies in the kitchen appliances space—so this overture, like a few others before it, would be politely rebuffed.
Historically, sales of Blaine appliances had been cyclical as well, tending to track overall macroeconomic activity. Therefore, it is due to the tax shield effect of being a leveraged firm that as a member of Blaines controlling family I would want to go ahead and buy back these shares with new debt and unlock this hidden value within the company.
However, by issuing debt and repurchase shares, the shareholders can benefit from the nature of the debt that is tax deductible. BKI has been under levered for decades. This is just a sample partial case solution.
Consider the following share repurchase proposal: Blaine Kitchenware has a unique current method of capital structure. Therefore, the increase in payout ratio is not appropriate, as the company will be better-off reinvesting these funds within the company.
This extremely high ratio reflects just how little the company has leveraged debt Debt ratio 0. The consequences to these new acquisitions are that this has diluted the shareholders value, their earnings per share has fallen significantly due to these dilutive acquisitions, and return to shareholders were below average.
Management should use all available cash in attractive investments. Earnings per share would increase from 0. Subsequently, Blaines ROE in was extremely lower than that of its peers.
However, from the past performances and future forecasts in the case study we can see that Blaine is operating very well and the increasing risk would not effect the firm dramatically. Perhaps even more unsettling, it would cause Blaine to borrow money. They are also very busy running their own corporations, so memos written in a concise manner are better received.
Dubinski had begun to suspect that family members on the board would welcome some of the possible effects of a large share repurchase. Investors usually consider the periodical dividend as an evaluation for a healthy company. In this manner, the expansion in payout proportion is not proper, as Blaine kitchenware case organization will be in an ideal situation reinvesting these assets inside of the organization.
However, the company has also issued substantial amount of shares in the past three years in order to fund their acquisitions. The issue at hand is a dilution of common stock, which has come at the cost of Blaines acquisition strategy employed.
Download Case Solution Blaine kitchenware has maintained a consistent dividend per share in the past few years, which is usually a good indicator. The result being higher returns to stockholders higher ROE. The second time was during the first oil shock of the s.
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Blaine Kitchenware Case Study Answers 1. ABOUT THE COMPANY Blain Kitchenware, Inc. (BKI), founded inis a mid-sized producer of small appliances for residential kitchens. Summary of case problem Blaine Kitchenware Inc. is a mid-size producer of branched small appliance used in residential kitchen.
Its capital structure has caused it to be “over-liquid and under-levered” net D/E is ,06%. In this case, Blaine’s shareholders are suffering from the effects.
Because Blaine is a public company with large portion of its shares held by conservative family members, Blaine has huge financial surplus and causes bad financial leverage.
Blaine Kitchenware, Inc.: Capital Structure (Brief Case) Case Solution, Case Analysis, Case Study Solution by Joel L. Heilprin, Timothy A.
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