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Research papers Tagged With: Finance 4 pages, words 1. Inappropriate current capital structure and payout policies3 2. Advantages and disadvantages of large share repurchase proposal4 a. Effects of share repurchase on assets, liabilities and equity on balance sheet5 b. Effects of share repurchase on debt ratios and interest coverage ratio5 c.
Bonus question—effects on wacc6 4. Effects of the proposed share repurchase on shareholders6 Appendix7 Executive Summary The main problem faced by BKI is over liquidity and under leverage. The capital structure of Blaine is too conservative. The main source of funding for business comes from equity capital.
In the meantime, current payout policies make payout ratio go up, lowering efficiency of the firm. The company can solve these problems by issuing debt to repurchase its stock.
Debt is a lower cost source of financing and allows a higher return to the. In addition, the company can benefit from tax-deductible interest and thus lower tax burden. However, debt is not always excellent, and we should analyze whether the profitability of raising the debt is greater than the cost of leverage.
The company increased it s interim dividend to 4.
Also consumers will spend less. Both of these factors will lead to a fall in company Blaine Kitchenware was a mid-sized producer of small appliances primarily used in residential kitchens.
Moreover, its earnings per share had fallen significantly sincepartly due to dilutive acquisitions. The first was during World War II and second during oil shock of s.
Inappropriate current capital structure and payout policies Currently, the main source of funding for its business comes from equity capital. Here are some explanations. First, current capital structure makes high cost of financing despite its low risk.
Although risk will increase as debt increases, debt financing will lower the cost of capital and increase returns to shareholders. Debt is a lower cost source of funds and allows a higher return to the shareholders by leveraging their money. Additionally, the company can benefit from tax shield by tax-deductible interest payment.
Second, current capital structure may lower efficiency of the firm. This evidence shows that shareholders are paying for this over-liquid and under-levered capital structure. In other words, it hurts the value of firm in the long run. They are not maximizing firm value by staying away from debt financing.
First, current payout policies directly increase payout ratio by issuing large amount of new shares. High payout ratio shows that the company has to spare a large amount of cash to pay dividends rather than invest in more profitable projects.
In addition, given that dividends per share climbed slightly, earnings per share dropped greatly from 1.
Although riskier, debt financing helps company have a better financial structure and because Blaine Kitchenware refuses to do so, we agree that their capital structure and pay out policies are not the most appropriate for the firm.
The followings are advantages of share repurchase. Its directors want to redeem the cumulative redeemable preference share CRP and then to issue the right issue to existing shareholders For Sandpiper, if the special resolution regarding the repurchase of shares cannot be obtained, the directors cannot redeem CRP BKI has been under levered for decades.
In addition, practically, conducting a large share repurchase by leveraging the company is not costly.
Again, the board will be the biggest beneficiary. Last but not least, action of repurchasing shares would decrease payout ratio significantly. Share repurchase will be very effective to solve this problem. Superconductor Corporation had important reasons for accepting equity financing.Evaluation on Share Repurchase Proposal of Blaine Kitchenware Inc.
Group 7 Contents Executive Summary 3 Overview of problems 3 Analysis on Capital Structure & Payout Policies of Blaine 3 1. Inappropriate current capital structure and payout policies 3 2. Advantages and disadvantages of large share repurchase proposal 4 a. Advantages and disadvantages of large share repurchase proposal4 a.
Effects of share Evaluation On Share Repurchase Proposal Of Blaine Kitchenware Inc. Filed Under: Research papers Tagged With: Advantages and disadvantages of large share repurchase proposal The large share repurchase should be recommended to Blaine’s .
Effectss of portion redemption on Net incomes Per Share and Return On Equity I) Effects on net incomes per portion If Blaine would non take the redemption proposal.
given everything else peers. Evaluation on Share Repurchase Proposal of Blaine Kitchenware Inc. Group 7 Contents Executive Summary 3 Overview of problems 3 Analysis on Capital Structure & Payout Policies of Blaine 3 1. Share redemption will be really effectual to work out this job.
Decreasing payout ratio means the company can really save more money for future investing and growing. Besides. net incomes per portion will travel up with portion redemption.
which is good intelligence for all stockholders. True. there are two disadvantages of this proposal. Share repurchase proposal: Currently, the firm has available capital (cash and net income) of approximately $5,, There is a large block of stock available at $25 a share.
There is a large block of stock available at $25 a share.