Sheet 1^

Sheet 2^

Sheet 3^

Please fill out excel at the top of this post and show formulas. Questions were added in case you need additional information

ither income is earned through the investment of Since the cash is used to repurchase shares, the - income for 2006 with repo should be zero for e's account. ?ver, since shareholders possess the cash after repo sold their shares to Blaine and get the cash) and we ne shareholders will invest the cash just like Blaine he earnings on excess cash in shareholders' account Iffective tax rate for 2006 when lating taxes if the tax rate is not given. o numbers (Cell P84 and Cell P85) should iame (the absolute value should be the same if you have different sign for your items). Why? Please discuss it in your report Case Exhibit 1 Operating Results: Revenue Less: Cost of Goods Sold Gross Profit Less: Selling, General \& Administrative Operating Income Plus: Depreciation \& Amortization EBITDA \begin{tabular}{|r|r|r|} \hline 2004 & 2005 & 2006 \\ \hline 291,940 & 307,964 & 342,251 \\ \hline204,265 & 220,234 & 249,794 \\ \hline 87,676 & 87,731 & 92,458 \\ \hline 25,293 & 27,049 & 28,512 \\ \hline 62,383 & 60,682 & 63,946 \\ \hline 6,987 & 8,213 & 9,914 \\ \hline 69,370 & 68,895 & 73,860 \\ \hline \end{tabular} EBIT Plus: Other Income (expense) Earnings Before Tax Less: Taxes Net Income Dividends \begin{tabular}{|r|r|r|} \hline 62,383 & 60,682 & 63,946 \\ \hline 15,719 & 16,057 & 13,506 \\ \hline 78,101 & 76,738 & 77,451 \\ \hline 24,989 & 24,303 & 23,821 \\ \hline 53,112 & 52,435 & 53,630 \\ \hline 18,589 & 22,871 & 28,345 \\ \hline \end{tabular} (1) Blaine's future tax rate is assumed to revert to the statutory rate of 40%. Case Exhibit 2 Assets: Cash \& Cash Equivalents Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets \begin{tabular}{|r|r|r|} \hline 2004 & 2005 & 2006 \\ \hline 67,391 & 70,853 & 66,557 \\ \hline 218,403 & 196,763 & 164,309 \\ \hline 40,709 & 43,235 & 48,780 \\ \hline 47,262 & 49,728 & 54,874 \\ \hline 2,586 & 3,871 & 5,157 \\ \hline 376,351 & 364,449 & 339,678 \\ \hline \end{tabular} Property, Plant \& Equipment Goodwill Other Assets Total Assets Liabilities \& Shareholders' Equity: Accounts Payable Accrued Liabilities Taxes Payable Total Current Liabilities Other liabilities Deferred Taxes Total Liabilities Shareholders' Equity Total Liabilities \& Shareholders' Equity \begin{tabular}{|r|r|r|} \hline 26,106 & 28,589 & 31,936 \\ \hline 22,605 & 24,921 & 27,761 \\ \hline 14,225 & 17,196 & 16,884 \\ \hline 62,935 & 70,705 & 76,581 \\ \hline 1,794 & 3,151 & 4,814 \\ \hline 15,111 & 18,434 & 22,495 \\ \hline 79,840 & 92,290 & 103,890 \\ \hline 417,377 & 458,538 & 488,363 \\ \hline 497,217 & 550,829 & 592,253 \\ \hline \end{tabular} Note: Many items in BKI's historical balance sheets, e.g. Property, Plant \& Equipment have been affected by the firm's acquisitions. Exhibit 3 Selected Operating and Financial Data for Public Kitchenware Producers 1. Consider the following share repurchase proposal: Blaine will use $209 million of cash from its balance sheet and $50 million in new debt-bearing interest at the rate of 6.75% to repurchase 14.0 million shares at a price of $18.50 per share. How would such a buyback affect Blaine? Consider the impact on, among other things, BKI's earnings per share and ROE, its interest coverage, and debt ratios, the family's ownership interest, and the company's cost of capital (WACC). 2. Calculate Blaine's firm value before and after the repurchase using WACC approach (assuming there is no capital expenditure and no change of NWC). The future free cash flow will be the same as 2006 and last indefinitely. 3. Use MM I with taxes to compute firm value after repurchase. Does the result from MM I agree with the result from WACC? Why or why not? 4. Do you believe Blaine's current capital structure is appropriate? Why or why not? (You may want to use the information presented in sheet 3 of the Excel template to compare Blaine with its peers, especially peers with debt financing, focusing on enterprise value. You may also want to discuss the financial leverage effects on earnings and risk. In addition, you can discuss the long-term solvency issue after repo and compare it to the peers). 5. Should Dubinski recommend a large share repurchase to Blaine's board? What are the primary advantages (at least 3) and disadvantages (at least 3) of such a move? 6. As a member of Blaine's controlling family, would you be in favor of this proposal? Would you be in favor of it as a non-family shareholder? 7. Suppose that Mr. Dubinski has obtained from Blaine's banker the quotes (the one in the template, ignore the one provided in the case) for default spreads over 10-year Treasury bonds What do these quotes imply about BKI's cost of debt at the various debt levels and credit ratings? Compute BKL's weighted average cost of capital at each of the indicated debt levels. What do your calculations imply about Blaine's optimal capital structure? ither income is earned through the investment of Since the cash is used to repurchase shares, the - income for 2006 with repo should be zero for e's account. ?ver, since shareholders possess the cash after repo sold their shares to Blaine and get the cash) and we ne shareholders will invest the cash just like Blaine he earnings on excess cash in shareholders' account Iffective tax rate for 2006 when lating taxes if the tax rate is not given. o numbers (Cell P84 and Cell P85) should iame (the absolute value should be the same if you have different sign for your items). Why? Please discuss it in your report Case Exhibit 1 Operating Results: Revenue Less: Cost of Goods Sold Gross Profit Less: Selling, General \& Administrative Operating Income Plus: Depreciation \& Amortization EBITDA \begin{tabular}{|r|r|r|} \hline 2004 & 2005 & 2006 \\ \hline 291,940 & 307,964 & 342,251 \\ \hline204,265 & 220,234 & 249,794 \\ \hline 87,676 & 87,731 & 92,458 \\ \hline 25,293 & 27,049 & 28,512 \\ \hline 62,383 & 60,682 & 63,946 \\ \hline 6,987 & 8,213 & 9,914 \\ \hline 69,370 & 68,895 & 73,860 \\ \hline \end{tabular} EBIT Plus: Other Income (expense) Earnings Before Tax Less: Taxes Net Income Dividends \begin{tabular}{|r|r|r|} \hline 62,383 & 60,682 & 63,946 \\ \hline 15,719 & 16,057 & 13,506 \\ \hline 78,101 & 76,738 & 77,451 \\ \hline 24,989 & 24,303 & 23,821 \\ \hline 53,112 & 52,435 & 53,630 \\ \hline 18,589 & 22,871 & 28,345 \\ \hline \end{tabular} (1) Blaine's future tax rate is assumed to revert to the statutory rate of 40%. Case Exhibit 2 Assets: Cash \& Cash Equivalents Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets \begin{tabular}{|r|r|r|} \hline 2004 & 2005 & 2006 \\ \hline 67,391 & 70,853 & 66,557 \\ \hline 218,403 & 196,763 & 164,309 \\ \hline 40,709 & 43,235 & 48,780 \\ \hline 47,262 & 49,728 & 54,874 \\ \hline 2,586 & 3,871 & 5,157 \\ \hline 376,351 & 364,449 & 339,678 \\ \hline \end{tabular} Property, Plant \& Equipment Goodwill Other Assets Total Assets Liabilities \& Shareholders' Equity: Accounts Payable Accrued Liabilities Taxes Payable Total Current Liabilities Other liabilities Deferred Taxes Total Liabilities Shareholders' Equity Total Liabilities \& Shareholders' Equity \begin{tabular}{|r|r|r|} \hline 26,106 & 28,589 & 31,936 \\ \hline 22,605 & 24,921 & 27,761 \\ \hline 14,225 & 17,196 & 16,884 \\ \hline 62,935 & 70,705 & 76,581 \\ \hline 1,794 & 3,151 & 4,814 \\ \hline 15,111 & 18,434 & 22,495 \\ \hline 79,840 & 92,290 & 103,890 \\ \hline 417,377 & 458,538 & 488,363 \\ \hline 497,217 & 550,829 & 592,253 \\ \hline \end{tabular} Note: Many items in BKI's historical balance sheets, e.g. Property, Plant \& Equipment have been affected by the firm's acquisitions. Exhibit 3 Selected Operating and Financial Data for Public Kitchenware Producers 1. Consider the following share repurchase proposal: Blaine will use $209 million of cash from its balance sheet and $50 million in new debt-bearing interest at the rate of 6.75% to repurchase 14.0 million shares at a price of $18.50 per share. How would such a buyback affect Blaine? Consider the impact on, among other things, BKI's earnings per share and ROE, its interest coverage, and debt ratios, the family's ownership interest, and the company's cost of capital (WACC). 2. Calculate Blaine's firm value before and after the repurchase using WACC approach (assuming there is no capital expenditure and no change of NWC). The future free cash flow will be the same as 2006 and last indefinitely. 3. Use MM I with taxes to compute firm value after repurchase. Does the result from MM I agree with the result from WACC? Why or why not? 4. Do you believe Blaine's current capital structure is appropriate? Why or why not? (You may want to use the information presented in sheet 3 of the Excel template to compare Blaine with its peers, especially peers with debt financing, focusing on enterprise value. You may also want to discuss the financial leverage effects on earnings and risk. In addition, you can discuss the long-term solvency issue after repo and compare it to the peers). 5. Should Dubinski recommend a large share repurchase to Blaine's board? What are the primary advantages (at least 3) and disadvantages (at least 3) of such a move? 6. As a member of Blaine's controlling family, would you be in favor of this proposal? Would you be in favor of it as a non-family shareholder? 7. Suppose that Mr. Dubinski has obtained from Blaine's banker the quotes (the one in the template, ignore the one provided in the case) for default spreads over 10-year Treasury bonds What do these quotes imply about BKI's cost of debt at the various debt levels and credit ratings? Compute BKL's weighted average cost of capital at each of the indicated debt levels. What do your calculations imply about Blaine's optimal capital structure