What should Collyns recommend?

What should Collyns recommend?


Note: A spreadsheet is provided to assist students. Students however can create their own analysis, financial model, spreadsheet, schedule or tables.


Please submit your case write up, presentation and spreadsheet. Please put you names on the spreadsheets as well,


Table of Contents 1. What is going on at CPK? What decisions does Susan Collyns face? In what ways can she facilitate the success of CPK? What do you recommend? 3 2. Using the scenarios in case Exhibit 9, what role does leverage play in affecting the return on equity (ROE) for CPK? 5 3. Is the capital structure decisions relevant for maximizing the shareholders’ value? What is the ratio of debt-to-equity that maximizes the shareholder’s value? Why should the stockholders care about maximizing firm value? Shouldn’t they be interested in strategies that maximize shareholder value only? 7 Distribution of Shares Between Controlling & Non-Controlling Shareholders 8 Distribution of Shares Between Controlling & Non-Controlling Shareholders After Buyback 9 4. How does debt add value to CPK? 9 5. What is the case for not doing the recapitalization? 10 Sources of cash = NOPAT + Net new debt 10 Growth in total capital = ROC + Change in D/TC – Payments/TC 11 6. What should Collins recommend? 11

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