Assess the value of a proposed leveraged recapitalization (recap). Suppose Blaine uses all of its current cash and marketable securities plus $50 million in new debt to repurchase equity, and will maintain its debt level at $50 million (indefinitely).

1. Take the balance sheet from December 31, 2006, as an example (Exhibit 2). How would the recap change Blaines balance sheet (book values)?

Complete the following table: Pre-recap Post-recap ASSETS Cash & Marketable Securities 230,866 Accounts Receivable 48,780 Inventory 54,874 Other Current Assets 5,157 Total Current Assets 339,678 PP&E 174,321 Goodwill 38,281 Other Assets 39,973 Total Assets 592,253 LIABILITIES Accounts Payable 31,936 Accrued Liabilities 27,761 Taxes Payable 16,884 Total Current Liabilities 76,581 Other Liabilities 4,814 Deferred Taxes 22,495 Debt 0 Total Liabilities 103,890 Shareholders Equity 488,363 Total Liabilities & Equity 592,253

a. What is the change in net debt?

b. What is the post-recap value of net debt/enterprise value?