# Respuesta 3 Caso Blane

Topics: Stock market, Stock, Dividend Pages: 6 (1753 words) Published: June 23, 2013

There are many reasons why a company would do a buyback of shares. One of the main reasons why a company would buy back their shares is if they have excess amounts of cash. If a company believes their share price is undervalued, they will do a buy back in hopes of raising the share price. Another reason is that since dividends are always taxed at a higher rate than capital gains, companies will often prefer to do a buyback for their shareholders, rather than distribute dividends. Also, companies often do a share buyback if they plan on leaving the country or if they want to close the company. When deciding whether to repurchase shares or not, we consider three of the following scenarios:

1.BKI should not do any type of buyback.
2.BKI should only do a partial repurchase of shares.
3.BKI should do an entire buyback of shares.
Each option will be looked at thoroughly in the following calculations.

Option 1
(In Millions)
Number of shares: 59,052
Net Income: 53,630
Therefore EPS = Net Income ÷ Number of Shares
= 53,630 / 59,052
= 0.91 (Rounded)
Price per share = \$16.25
Price to earnings ratio = Market Price ÷ EPS
= 16.25 / 0.91
= 17.86
ROE Calculation = Net Income ÷ Shareholder’s Equity
ROE = 53,630 / 488,363
= 11%

Option 2
(In Millions)
Total Cash & Cash Equivalents = 66,557
Marketable Securities = 164,309
Total amount available for buyback = 230,866
Number of Shares bought = 230,866 / 16.25
= 14,207
Therefore the number of shares remaining = 59,052 – 14,207
= 44,845
Calculation of EPS = Earnings per share ÷ total number of shares The company could have invested in U.S. treasury securities so now we will have to account for the loss in interest earnings had it invested in those securities. This interest rate is calculated by averaging out all the yields on U.S. treasury securities provided in Exhibit 4 which equals 4.92%. This means net earnings now equals: 53,630 – (4.92% x 230,866)

= 53,630 –...