The focus of this case is to understand how leverage should affect beta and the impact of different levels of debt on the WACC.

The focus of this case is to understand how leverage should affect beta and the impact of different levels of debt on the WACC. In the end you are providing a recommendation to Blaine insiders to help them make an informed decision on a stock repurchase proposal so as to reach an optimal capital structure. Please consider addressing the following questions in your summary:

Suppose that Blaine’s investment bankers proposed using $209 million of cash from the balance sheet and $50 million of new debt to repurchase 14.0 million shares at $18.50, a premium to the current price. 

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i) Should Mr. Dubinski recommend this repurchase proposal to the Board of Directors? If so, is that the optimal amount of debt to issue? Or, should they take on more debt and buy back more shares? (What does your analysis on WACC imply about Blaine’s optimal capital structure?) 

ii) With your suggested repurchase plan (take debt to buy back shares), you also need to find the Break-Even EBIT to check if your proposed capital structure change (add debt to buy back stock) is feasible. 

You will submit TWO files to this Assignment:  the Excel file containing the WACC worksheet, and the one-page Executive Summary with 12 font and normal margins.  Be sure to retain the original Excel formatting so that I may click on each cell to determine its derivation.