1) Financial Statement Analysis
a. Effect of proposed repurchase on Blaine’s 2006 Balance Sheet?
b. Effect of proposed repurchase on Blaine’s 2006 Income Statement?
c. Impact on financial ratios: leverage, liquidity, profitability, EPS, ROE, etc.
d. Effect of the tax deduction experienced by the levered firm. The trade-off of tax deduction and interest payment obligation.
e. Does the proposed repurchase of shares create any value?
Analyze the basic tradeoff of the optimal capital structure to Blaine Kitchenware. How much leverage should be considered by the firm’s management? What is the best WACC for Blaine over a range of capital structures? (need WACC for multiple amounts of stock buybacks and for differing investment rates)
Consider excess cash as “negative debt”. The firm becomes a net lender than a net borrower. It is receiving rather than paying interest. What is the trade-off here?
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