raise money for their business. BKI plans repurchase its own shares. This means BKI plans to invest into its own company. The company’s main issue is the fact that it is over liquid and under-levered and whether to distribute cash to shareholders by buying back shares or paying dividends. The answer is easy as this; BKI has to spend money to make money. Lucky for them they have the money and have more than enough to invest into their company. When BKI repurchase their shares they are sending the message
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located mainly in airports and malls. However‚ they have halted expansion of this in order to focus on international development of its main restaurant. With the recent 10% share price decline‚ CPK management considers if it would be an ideal time to repurchase shares and potentially leverage the company’s balance sheet with its existing line of credit. In order to continue to fund strong expansion‚ it is considering repurchasing shares and will need to use debt financing to pursue this. Since going public
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Step 1: Profitability and Earnings Retention At the end of each year the return that Costco realizes on equity capital can either be reinvested back into the business or paid out to investors as dividends and common stock repurchases. If no dividends or share repurchases were made and earnings were reinvested back into the business at the same incremental rate of return‚ the company’s return on equity would hold constant over time. In reality‚ most companies‚ including Costco‚ frequently experience
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shareholders and payout policies. * As stated in the case‚ “Despite the company’s profitability‚ returns to shareholders had been somewhat below average”. This is due directly to their net income and the amount of book equity. Subsequently‚ Blaine’s ROE in 2006 was extremely lower than that of its peers. This creates a big problem for the firm because their returns are lower than others and it reduces how outsiders will value the firm. * Furthermore‚ their payout ratio has also been affected.
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approximately 10.6% higher than industry average. Despite strong growth‚ the company’s share price declined 10% to a value of $22.10 due to economic issues as a whole. Due to the decline‚ CPK’s management is considering buying back shares through a stock repurchase program as they feel the stock is undervalued at the current price. A look at CPK’s balance sheet from the 1st quarter of 2007 shows cash‚ cash equivalents and other receivables make up only 5.3% of total assets. With such a small amount of cash
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on a share repurchase financed by cash and new debt issuance. After the analysis of a simple proposal‚ it is obvious that the financial ratios and cost of capital are strengthened after the bond issuing and share buyback. We then evaluate the amount of debt issuing that is most favorable to the company by analyzing the trade-off involve and under the consideration of the information asymmetry and agency cost. Also‚ a special dividend plan is introduced and compared with the repurchase. Detailed recommendations
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an increase in debt ratio for AHP is directly related to an increase in financial risk. At actual levels in 1981 ROE= 33.8%; ROIC =33.4% At 30% debt ROE= 51.5%; ROIC =38.3% At 50% debt ROE = 69.2%; ROIC = 38.3% At 70% debt ROE= 110.5%; ROIC= 38.3% Exhibit 4 shows that AHP used 233 million $ of excess cash to repurchase stock on each proposed debt level and the remaining amount would be financed by debt. Therefore outstanding shares
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cash to increase shareholder value. If BBBY were to use $400 million in excess cash and $636.3 million in borrowed funds to repurchase it’s shares they would increase their basic earnings per share from 1.35 to 1.41 and their diluted earnings per share from 1.31 to 1.37 (exhibit 2). If BBBY were to use $400 million in excess cash‚ and borrow $1.27 billion to repurchase their shares‚ they would decrease their basic earnings per share from 1.35 to .70 and their diluted earnings per share from 1.31
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| 10.0% | | | | | | | | | | | | | 50% | | 12.0% | | | | | | | | | | | | | | | | | | | | | | | | | | | If the company were to recapitalize‚ debt would be issued‚ and the funds received would be used to repurchase stock. Pizza Palace is in the 40% state-plus-federal tax bracket‚ the risk-free rate is 6 percent‚ and the market risk premium is 6 percent. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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changes: * Increase the value of the firm through the benefit of tax shield from current $960million to $1.063billion. * The offer results in 3% increase in EPS from $0.91 to $0.93 based on 2006 financial numbers. * An increase of 7.3% on ROE from 11% to 18.3% based on 2006 financial numbers. * After adjustment‚ share prices will be $18.0. Proposed Buy-Back Plan Analysis: Although Blaine’s current financial situation is sound with no debt‚ its current balance sheet is under levered
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