You have been hired as a consultant toVictor Dubinski, the CEO of Blaine Kitchen.
You have been hired as a consultant toVictor Dubinski, the CEO of Blaine Kitchenware. You are charged with putting together a written report with supportingnumerical analysis that addresses the following items:
Isthe current capital structure and payout policy for Blaine optimal? Explain and justify your conclusion. Use numbers whenever possible.
ShouldBlaine recommend a large share repurchase to the Board of Directors? What are the advantages and disadvantages ofthis action? Again, explain and justifyyour conclusions. Use numbers wheneverpossible.
Considertwo specific share repurchase proposals:
Blaine will issue $50 million innew debt at an interest rate of 6.75%
Blaine will use $209 million ofcash from its balance sheet
Blaine will use these two sourcesof cash to repurchase 14 million shares at $18.50/share.
Supporting documentation is attached.