Answer:
a) Income statement
Net income will decrease due to interest expense
interest expense ( $50,million * 5.88%) = $2,940,000
Balance sheet
Assets
Bank will decrease by the $209 million
Equity and liabilities
Equity
Stock outstanding will decrease in both numbers( 14.0 million shares) and in amount ($ face value or par)
Retain earnings will decrease by gain(loss) on repurchase of stock
b) -The EPS
The EPS will increase( decrease outstanding share) and it is a positive change, but changes in earnings will decide the change in EPS ultimately.
-ROE
ROE increases and it is a positive change, the higher the ROE the higher the attraction on investors and it is positive.
Interest coverage
Interest coverage will decrease due to the new interest expense added by the loan taken and this is negative.
Debt Ratio
The debt ratio will increase meaning more debt is used to fund assets and the increase is negative.
c) Since the ROE and EPS will increase then Blaine is doing good but with a debt risk now it will depend on the expectations of the investor and his risk appetite, but if judging by ROE then it is doing good.
d) If i was a family member i would not accept the proposal, taking on debt and using so much funds from the business to fund repurchase of shares, no this could leave the business with difficult times.
If I was a shareholder and not family, i would accept as my share price would increase hence returns
Explanation:
