Blaine Kitchenware Inc

Blaine Kitchenware, Inc.

Rel 488 Spring 2012

Purpose

To apply capital structure theory and principles

Type

Blaine Kitchenware is a team case.

Requirements

1. The case is to be submitted through the Assignments link in Blackboard by 7:30 am on March 26, 2012. Please submit Excel spreadsheets and your PowerPoint presentation with your write-up. Your write-up and presentation should be to the CEO Victor Dubinski.

2. The four teams will present their cases in class on March 26, 2012 and March 28, 2012. The presentations and write-ups should address the questions and requirements below.

a. Estimate the following using MM (with taxes) and the CAPM assuming a current marginal tax rate of 30.8% and an EMRP of 5.0%.

i. The enterprise value based on the current debt ratio.

ii. The asset beta and cost of equity based on Blaine’s current net debt.

iii. The present value of the debt tax shield and VU (Value of the firm at a debt ratio of zero).

b. Review whether Blaine’s current capital structure and payout policies are appropriate.

c. Consider the following repurchase proposal using a future marginal tax rate of 40%.

i. Blaine uses $209 million of cash and $50 million in interest bearing debt (Coupon rate of 6.75%) to repurchase 14 million shares at a price of $18.50 per share.

ii. How would this buyback affect Blaine?

1. What is the impact on the 2006 Balance Sheet and debt ratio?

2. What