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    Formula:: (No of Shares Outstanding Before The Buy Back)

    Uploaded by

    Bushra Syed
    The proposal considers using $209M of cash and $50M of new debt at 6.75% interest to repurchase 14M shares at $18.50 per share. This will affect Blaine's EPS, ROE, interest coverage, debt ratios, and cost of capital. Calculations show the ROE would be 18.27%, EPS would increase by 2.24%, interest coverage ratio would be 18.95 times, debt ratio would be 32.91%, and the family ownership interest would be 81%. The cost of capital is calculated to be 7.61%.

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    Formula:: (No of Shares Outstanding Before The Buy Back)

    Uploaded by

    Bushra Syed
    1K views5 pages
    The proposal considers using $209M of cash and $50M of new debt at 6.75% interest to repurchase 14M shares at $18.50 per share. This will affect Blaine's EPS, ROE, interest coverage, debt ratios, and cost of capital. Calculations show the ROE would be 18.27%, EPS would increase by 2.24%, interest coverage ratio would be 18.95 times, debt ratio would be 32.91%, and the family ownership interest would be 81%. The cost of capital is calculated to be 7.61%.

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    Blaine_Kitchenware_excel

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    The proposal considers using $209M of cash and $50M of new debt at 6.75% interest to repurchase 14M shares at $18.50 per share. This will affect Blaine's EPS, ROE, interest coverage, debt ratios, and cost of capital. Calculations show the ROE would be 18.27%, EPS would increase by 2.24%, interest coverage ratio would be 18.95 times, debt ratio would be 32.91%, and the family ownership interest would be 81%. The cost of capital is calculated to be 7.61%.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    1K views5 pages

    Formula:: (No of Shares Outstanding Before The Buy Back)

    Uploaded by

    Bushra Syed
    The proposal considers using $209M of cash and $50M of new debt at 6.75% interest to repurchase 14M shares at $18.50 per share. This will affect Blaine's EPS, ROE, interest coverage, debt ratios, and cost of capital. Calculations show the ROE would be 18.27%, EPS would increase by 2.24%, interest coverage ratio would be 18.95 times, debt ratio would be 32.91%, and the family ownership interest would be 81%. The cost of capital is calculated to be 7.61%.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    At a glance
    Powered by AI
    Some of the key takeaways from the document are that it discusses how to calculate financial metrics like return on equity (ROE), earnings per share (EPS), interest coverage ratio, and debt ratio. It also provides calculations to determine the weighted average cost of capital (WACC).

    The proposed share repurchase would increase EPS and ROE while decreasing the debt ratio and increasing the interest coverage ratio. This is because repurchasing shares reduces the number of shares outstanding, increases net income attributable to each share, and pays down debt.

    To calculate WACC, the document first uses the capital asset pricing model (CAPM) to find the return on equity. It then uses this return on equity and the weights of debt and equity to determine WACC.

    3.

        The following proposal is being considered by the CEO: Blaine will use $209M of cash from its
    new debt at an interest rate of 6.75% to repurchase 14M shares at a price of 18.50 per share. Ho
    affect Blaine (consider EPS, ROE, interest coverage, debt ratios and cost of ca
    Formula:
    ROE = Net Income / Shareholder's equity
    EPS = Net income / No of shares outstanding
    Interst Coverage = EBIT / Interest Expense
    Debt Ratio = Total Debt / Total Assets
    Cost of Capital = CAPM to get the return on equity and then use WACC to find the cost of capital

    Values considered:
    We know that the Market capitalization is $959,596,000 and the Current value of Shares is $16.25 from the case
    No of Shares Outstanding = Market Cap / Value of shares ---> 959,596,000/16.25 = 59,052,061 ( no of shares ou

    Blain will use $209M of Cash from it B/S and take debt of $50M at 6.75% interest rate to repurchase 14M share
    No of Shares Outstanding after buy back = 59,052,061 - 14,000,000 = 45,052,061
    Interest Expense of Blaine = 50,000,000 * 0.0675 = 3,375,000
    From Exhibit 3 we know that the EBIT is 63,946,000 so then the interest expense = 50,000,000 x 6.75% = 3,375,0
    Hence Earnings Before Tax (EBT) = EBIT -Interest Expense =63,946,000-3,375,000 = 60,571,000
    Finally we can get the Net Income by EBT - Tax rate of 30.8% = 60,571,000 - 30.8% = 41,915,132
    To calculate Total debt we take Total liability in the Balance Sheet post leverage
    Calculations

    ROE = N.Income / Shareholders equity


    ROE = 41,915,132 / 229,363,000 = 0.18 (OR) 18.27 %

    EPS= Net income / No of shares outstanding


    We know that EBIT is 63,946,000 - Interest Expense of 3,375,000 = 60,571,000 - Tax of 30.8% paid = 41,915,132
    EPS= 41,915,132 / 45,052,061 = 0.93
    Percentage change is EPS = 0.93-0.91/0.91 = 2.24%

    Interest Coverage Ratio = EBIT / Interest Expense


    From Exhibit 3 we know that the EBIT is 63,946,000 and interest expense = 50,000,000 x 6.75% = 3,375,000
    Interest Coverage Ratio = 63,946,000 / 3,375,000 = 18.95 times

    Debt Ratio = Total Debt / Total asset


    Total Liabilities is 126,129,000
    Total liabailities can be considered as Debt which includes additional borrowings of 50 Million
    Total assets is $383,253,000 from Balance Sheet Post Leverage

    Debt Ratio = 126,129,000 / 383,253,000 = 0.33 or 32.91%

    Family Ownership Interest


    62% of 59,052,061 before share buyback = 36,612,277
    New no of share outstanding = 45,052,061
    Therefore = 36,612,277 / 45,052,061 = 0.81 (or) 81%

    Cost of Capital = CAPM to find Return on Equity and then use that in WACC to find the cost of capital

    Data from the case (FY 2006)


    Long term debt
    Interest rate (rd)
    Net shares outstanding
    Current share price
    Market Capatilisation (USD '000)
    10 year yield on US treasuries (rf)
    S&P 500 index return (rm)
    beta of Blaine Kitchenware

    Total Capital (V)


    Weightage of Debt (D/V)
    Weightage of Equity (E/V)

    We calculate re using the CAPM:


    re = rf + beta(rm - rf)
    = 5.02% + 0.56(10.00% - 5.02%)
    = 7.81%

    WACC = (6.75% * 0.064)(1-30.8%) + (7.81% * 0.936)


    = 0.30 + 7.31
    WACC = 7.61%
    Values
    50,000,000
    6.75%
    45052000
    16.25
    732095000
    5.02%
    10.00%
    0.56

    782095000
    0.064
    0.936
    Share-Repurchase(With Leverage)
    All amount in $000
    Liabilities Amount Assets
    Accounts Payable 31936 Cash & Equivalent
    Accured Liabilities 27761 Marketable Security
    Taxes Payable 16884 Accounts Receivable
    Inventory
    Total Current Liabilities 76581 Other Current Assets

    Other Liabilities 4814 Total Current Asset


    Deferred Taxes 22495
    New Debt 50000 Plant, Property & Equip
    Total Liabilities 153890 Goodwill
    Other Asset
    Shareholders Equity 229363

    Total Liabilities + Total Equity 383253 Total Asset

    Total Asset = Total Liabilities + Total Equity


    383253 = 153890 + 229363
    Amount
    21866
    0
    48780
    54874
    5158

    130678

    174321
    38281
    39973

    383253

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