Question

Blaine Kitchenware, Inc. is an all-equity cash-rich company considering the following change in capital structure: • borrow $50 millions at an interest rate of 6.75% • use the loan together with $209 millions of its own cash to repurchase 14 millions shares at the current market price of $18.50/share Currently, the (market value) balance sheet and the income statement of Blaine Kitchenware, Inc. are as follows (expressed in $ thousands) : Assets Liabilities Cash $230,866 Debt $0 Other Assets $257,497 Equity $488,363 Total $488,363 Equity $488,363 Revenue $346,366 Less: Cost of Goods Sold $249,794 Gross Profit $96,572 Less: Selling, General & Administrative Expenses $28,512 EBIT $68,060 Earnings Before Tax $68,060 Less: Taxes $23,821 Net Income $44,239 Dividends $28,345 1 Questions: 1. Create the pro-forma balance sheet and income statement taking into account the proposed change in the capital structure, assuming the tax regime and payout policy (in terms of percentage of net income paid out as dividends) remain unchanged . please I need an explanation on how to calculate the balance sheet and the income statement not just the answer . Thank you

Answer 1

I have written everything. If in case of dobt please let me know

Amount in millions					Amount in millions			Loan (Debt)	50
Income Statement					Balance Sheet			Rate	6.75%
Revenue	346.366					Assets				Interest expense (in million)	3.375
Cost of goods sold (COGS)	249.794					Cash Balance beginning of year when there is a change in capital structure and shares are bought in market with cash	5.972
Gross Profit (Revenue- COGS)	96.572					Retention amount	12.519			Market price	18.5		Particulats	Amount in millions
						Cash balance end of year	18.491			Shares outstanding	14		Cash balance at beginning (Cash balance of 230.866- Retention amount of 15.894 when there was no debt)	214.972
Operating Expenses						Other Assets	257.497			Market cap (in million)	259		Cash utilized in buying shares	209
Selling, General & Administrative Expenses	28.512					Total Assets	275.988						Cash balance at the end (Cash balance- Cash utolized)	5.972
Total Operating Expenses	28.512									Total equity in beginning	488.363
						Liabilities				Number of shares outstanding in millions (Equity value which is 472.469/Market price which is 18.50)	11.53886
EBIT (Gross Profit- Operating Expenses)	68.06					Debt	50			Share repurchase	14
Operatig Profit	68.06					Total Liabilities	50			net shares outstanding in the market	11.53886
Interest Expenses (I)	3.375
EBT (EBIT-I)	64.685					Shareholders Equity
Taxes (T)	23.821					Equity	213.469
PAT (EBT-T)	40.864					Reserves & Surplus	12.519
						Total Shareholders Equity	225.988
Dividends (D)	28.345
Dividends Payout ratio (D/PAT)	0.693642					Total Liabilities & Shareholders Equity	275.988
Retention amount (R)	12.519
Retention ratio (b= (1-dividends payout ratio))	0.306358					Note: Retention amount comes in Reserves & Surplus in Shareholders equity side while it gets added to cash in assets side because of double entry accounting.