Blain

3. There are many reasons why do we make a share repurchase. First of all, to manage excess liquidity or excess cash for maximize firm’s benefit because we can improve financial ratio such as ROE, EPS, and Interest Coverage Ratio. Second, to make a large capital structure change, optimal capital structure will be revised since if executives consider that the stock price is undervalue stock buyback at the right time will cause great return (not matter the fund come from internal or external). Third, to avoid or eliminate dilution effect which will decrease earnings per share from increasing the number of shares outstanding. Lastly, to avoid or prevent the firm from becoming takeover targets by increasing enterprise value.

From Dubinski’s share repurchase proposal, it will have some changes on financial statement

balance sheet in 2007:- cash will lose 209m that makes balanced sheet will be 383,252 and 50,000 long term debt will occur which leads outstanding stocks decrease to 229,362. In summary, we have to use capital to take this repurchase proposal at $259,001 

income statement in 2007:- it will be 3,375 on interest expense so net income will be lessen to 51,293 at tax rate 40% in 2007.

Absolutely from this buyback proposal, the stock price will rise immediately as signal theory that the firm will repurchase their own stocks if it is undervalued. Besides, it shows that the firm has much excess cash to make this buyback. 

EPS: will be $1.14 (increase by 25.27%)

ROE: will be 22.36% (increase by 112.7%)

Interest Coverage Ratio: will be 18.95

Debt Ratio: 13.05% (50,000/383,252) use debt from this proposal only for calculation

Family’s ownership stake: 81.27% we assume that the founder’s descendants owed 62% of the outstanding stocks shares in 2006 {[(62%)*59,052,000]/45,052,000}

As family's ownership stake, they could get more percentage of stock. 

We can see that the family's owner stake will increase from more treasury stock because there are less investors to...