You have been hired as a consultant to Victor Dubinski, the CEO of Blaine Kitchenware. You are charged with putting together a written report with supporting numerical analysis that addresses the following items:
- Is the current capital structure and payout policy for Blaine optimal? Explain and justify your conclusion. Use numbers whenever possible.
- Should Blaine recommend a large share repurchase to the Board of Directors? What are the advantages and disadvantages of this action? Again, explain and justify your conclusions. Use numbers whenever possible.
- Consider two specific share repurchase proposals:
- First Proposal
- Blaine will issue $50 million in new debt at an interest rate of 6.75%
- Blaine will use $209 million of cash from its balance sheet
- Blaine will use these two sources of cash to repurchase 14 million shares at $18.50/share.
- First Proposal
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