Blaine Kitchenware, founded in , produces small appliances. Claims just under 10% of the $ billion US small appliance market. BLAINE KITCHENWARE Case Exhibit 1 Operating Results: Revenue , , , Less: Cost of Goods Sold , , The main fix in the case is whether Blaine Kitchenware’s should opt for repurchasing its own shares or not. If Blaine’s Kitchenware repurchases its shares, they.
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Teaching note supplement software. There is a big question facing Blaine and that is why would their existing shareholders want to sell their equity back to the company? However, the company must guard itself from getting over-levered. My account New to The Case Centre? A surplus of cash lowers the return on equity and increases the cost of capital; also large amount of cash may offer incentives to acquirer to and also decrease the enterprise value of Blaine.
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Interest 0 Earnings Before Tax 77, 74, Less: The management should use the available cash and invest in attractive investments. If you are the original author of this content and no longer wish to have it published on our website then please click on the link below to request removal:. The company has been earning less profits and hence it is of the opinion of distributing the profits to shareholders instead of retaining it for further investments.
The return on equity will increase which will aid the family in better realizing value for their stake. The company has been earning profit and it should seek and endeavor further growth opportunities instead of returning it back to shareholders.
The debt capital has been procured at very less cost when compared to equity and hence the WACC has reduced from The Case Centre is dedicated to advancing the case method worldwide, sharing knowledge, wisdom and experience to inspire and transform business education across the globe. Although investors take dividend as an indicator for a company to succeed, they also expect dividend will be paid continuously at either stable or growing rate.
Buyback of the shares using the surplus cash and issuing debentures is beneficial for the company as it will give some degree of leverage to the company. In summary, in order for Blaine to keep its current payout policies, they must reduce numbers of outstanding shares throughout share repurchasing.
Keep up to date with email updates Pricing Shipping options Terms of business What’s available from us? Debt being a cheap source of finance and given the industry standards confirming the availability of the debt as well as the conformity by the rivals in subscribing to the debt capital, it seems wise to have a levered capital structure instead of having a completely unlevered one as it would have affected the cost of capital of the company.
This shows that the company has been keen on less retention of money to further invest. Attention is also given to the bllaine of interest tax shields.
All fields Reference no. Using a perfect leverage is always beneficial for a company as it allows to decrease the cost of capital.
Blaine Kitchenware, Inc: Capital Structure | The Case Centre, for educators
Tax ID No The justification can be drawn from the diminishing returns for the last three years. It is a form of returning the money back to shareholders and the shareholders who are out there for investment purposes feel it a better option to stay their kitchenwwre invested in a growing company instead of receiving petty dividends.
Finance, Accounting and Control. As a non family member, the stock repurchase will make me more skeptical because the shares owned by the family is rising exponentially and hence making it more dominant. Would you be in favor of it as a non-family shareholder? Each of us is qualified to a high level in our area of expertise, and we can write you a fully researched, fully referenced complete original answer to your essay question. Access this kitchenwxre You must kitcheenware logged in to access preview copies.
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Order a custom essay Print this page Search again Word count: We are completely closed on Tuesday 1st January. Registered Data Controller No: What are the primary advantages and disadvantages of such a blanie However, concluding whether an unlevered or a levered capital kitchenwsre is appropriate for a company largely depends on the industry debt equity ratio i.
This is not a very healthy situation for a public company as the interest of the minority shareholders are sometimes not taken care of. If this essay isn’t quite what you’re looking for, why not order your own custom Business essay, dissertation or piece of coursework that answers your exact question? Blaine has an unlevered capital structure currently i.
The payout ratio of the company has been increasingly increasing for the past three years.
Although this will involve the company raising a significant debt, this will also give them complete control to the promoters. Their management will have increased stakes, this will reduce their chance of being acquired and this will provide more dividends to their remaining shareholders.
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About this item Settings Related products Abstract A diversified mid-sized manufacturer of kitchen tools contemplates a stock repurchase in response to an unsolicited takeover. We have not been given the seperate data for equity share capital and Retained Earnings.
They also have to consider of the effect of the repurchase on various factors like the risks involved in raising a debt especially when they are large, very conservative and debt free. It is evident that the cost of capital has reduced when the company decided to go for share repurchase using the surplus cash and debenture issue. Since Blaine Kitchenware is a public company with large portion of its shares held by their family members, they have a financial surplus, which decreases the efficiency of its leverage.
In other words, Blaine does not fully utilize its funds. According to their current situation we do not think their current capital structure and payout policies are appropriate. Following is the operating results for the year when the capital structure is levered and unlevered. This page has approximately words. Blaine is currently over-liquid and under-levered and their shareholders are suffering from the effects.
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