Berklee Case

1. Do you believe Blaine’s current capital structure is appropriate? Why or why not?

2. Consider the following share repurchase proposal:

Blaine will use $200M of cash from the cash and marketable securities on its balance sheet and $250M in new 20-year bonds to repurchase shares.

Calculate:

· The new share price

· The new number of shares outstanding

· The interest the firm will have to pay on these bonds (use 2006 EBITDA and the following table)

EBITDA/Interest coverage

· the unlevered cost of capital

· the wacc

Should such a proposal be accepted? Why or why not?

3. Using the income statement and balance sheet data from exhibits 1 and 2,

· Rearrange the balance sheet for year 2006 as discussed in our lecture notes 5:

· On the right hand side, you should have only interest-bearing debt and equity

· On the left hand side, you should have assets classified into operating and non-operating

· Calculate the unlevered cash flows for year 2006

1. Do you believe Blaine’s current capital structure is appropriate? Why or why not?

2. Consider the following share repurchase proposal:

Blaine