Answer

The new landscape of crypto currencies in India

The major crypto currency markets include China, Japan, South Korea, Thailand, Malaysia, India, Australia, Singapore, and New Zealand. However, the level of crypto currency knowledge is highest in Japan. With the prevailing governmental regulations in the markets, crypto currency transactions are enabled in the regions. Some of the common crypto currencies include Ethereum, Ripple, Bitcoin, and Tronn and Bittorrent token. Ethereum was launched in 2015 and is currently considered as the second-largest digital currency based on market cap after the Bitcoin. As of January 2020, Ether’s market cap was estimated at approximately 1/10 of bitcoin’s market size. Notably, Ether’s market cap was estimated at $ 15.6 billion per a token value of $ 142.54. The Bitcoin is the most dominant with a market share of approximately 45% (Jani, 2018).

Crypto trade is currently legal in India. Evidently crypto currency firms are expected to reestablish their plans to expand and invest their businesses in India after the verdict provided by the Supreme Court which overturned the Reserve Bank of India notification restricting the banking access for the trading of virtual currency. Notably, the virtual currency sector of India had been on a standstill after a notification was provided in April 2018 prohibiting the use of crypto currencies such as the Bitcoin (Chandrashekhar, Kar, & Manikandan, 2020). The 180-page judgment provided a depiction that the crypto currency was to be used as a means of trade based on the proportionality grounds (Chandrashekhar, Kar, & Manikandan, 2020).

According to Helms (2019), currently, there are no laws set aside that regulate the crypto currency trade in India. As a result, several risks and dangers are associated with the use of crypto currencies. The lack of regulation and the associated threats resulted to the closure of several crypto exchanges such as Zebpay and Koinex (Helms, 2019). The lack of regulation suggests that more players are scared of the associated potential downsides likely to be experienced. However, the first player to introduce the crypto exchange in the region is likely to derive benefits as it will be the first official exchange which will take advantage of the existing market dominated by few players (Helms, 2019).

Advocating for the establishment of laws which regulate the crypto currency market in India would open a gateway for the Indians who believe in the future of the crypto currency. Evidently, regulating the market would enable the people to engage in Bitcoin trading frees and earn money from the digital currency. Notably, Bitcoin is known to be the most valuable coin with a price cap of $19,783 as recorded in 2017 (Helms, 2019).

The crypto currency market in India can be very profitable. This is based on the fact that crypto currencies are not influenced by inflation as common with the fiat currencies. Despite the high market volatility rates, crypto currency offers people with a chance of earning more money in comparison to keeping rupees. The crypto currency business can also be profitable in India as the Bitcoin makes it possible for the people to complete transaction in a fast and cheap way without requiring identifications. Also, over 500 merchants allow the use of crypto currency for transactions showing the likelihood that the crypto sphere growth in India even more in the future.

The introduction of the crypto exchange in India can aid in the penetration of several big platforms by offering coins to infiltrate other big sectors such as sports betting. Evidently, many sports betting firms accept the use of digital currency. For instance, CloudBet betting service allows the usage of digital currency such as Bitcoin. Subsequently, the users earn money by gambling and paying with the digital currency which observes the payer’s anonymity and the events of a win, the player is paid through the use of fiat currency.

References

• Chandrashekhar, A., Kar, S. & Manikandan, A. (2020). Now that Crypto Trade is Legal in India, Here’s what happens Next. Economic Times. Retrieved from https://economictimes.indiatimes.com/industry/banking/finance/banking/now-that-crypto-trade-is-legal-in-india-heres-what-happens-next/articleshow/74485025.cms?from=mdr
• Helms, K. (2019). Indian Government Breaks Silence on Crypto Regulation. News Bitcoin. Retrieved from https://news.bitcoin.com/indian-government-crypto-regulation/
• Jani, S. (2018). The Growth of Cryptocurrency in India: Its Challenges & Potential Impacts on Legislation. Faculty of Management Studies. 13140/RG.2.2.14220.36486.

15

Blaine Kitchenware, Inc Capital Structure    

QUESTION

Analyze the Blaine Kitchenware, Inc Capital Structure    

1. Analysis of the proposed decision to repurchase the company’s stock

The proposal for Mr. Dubinsky to undertake a share repurchase scheme brings a number of benefits. Firstly, it would consolidate ownership of the company in the hands of family members. This would improve decision making which is good for a company facing strong competition like Blaine. The company will need to make better decisions going forward to remain in business.  Due to the play of forces of demand and supply the share price of the company’s stock would increase which would increase the company’s value in the market. Raising equity or debt in future would be easier as a result (Wursthorn, 2019).

The company may have to take on debt which is cheaper than equity as interest payments are allowable for tax purposes. The company will hence be able to benefit from lower tax payments.  The company’s weighted average cost of capital will therefore be much lower which will be good for future financing decisions.  Share repurchase will boost the reputation of the company in the eyes of the investing public as it will demonstrate the confidence that the founders have on the future of the company (Wursthorn, 2019).  The owners will have more control and influence on future decisions of the company.  The shareholders will be able to create a dividend policy that suits their long term interests.   Holding large amounts of cash is a cost as the company pays a return on equity to equity investors for their cash invested which essentially is the cash lying idle (Shipe, 2016).

However, there are certain disadvantages to this plan.  Firstly, it would decrease cash and cash equivalents that the company holds which would affect its liquidity position. This may affect its ability to make future capital investments and acquisitions which would affect its competitiveness in the market. With less cash and cash equivalents, the company’s ability to continue paying attractive dividends will be hindered. This will be detrimental to the reputation of the company in the market since some investors may take this to mean the company is struggling financially.  The company may also be forced to borrow to finance the share repurchase scheme which would add an extra cost in the form of interest expense into its operations (Shipe, 2016).   Additionally, minority interests may be overlooked as the stock repurchase will only enhance the voting rights of the family members who will be the majority stockholders.  Dubinsky will have to consider these options before making the final decision on that matter (Wursthorn, 2019).

1. The decision to reducing the price of Blaine’s product line to enhance the company’s ability to compete on price

Setting the price of a product line is an integral part of the marketing mix of a company.  Whereas it is often a difficult exercise, it’s advised that once prices have been set the best move is to keep them even when faced with variations in market conditions.   Before Blaine makes the decision to lower the price of its product lines, adequate research should be done to determine how sales will be impacted (Neubert, 2017). This is because a hasty and poorly planned reduction could alienate customers and lead to a drastic reduction in sales.  Higher prices do not always lead to higher profits and low prices do not always lead to more sales. It’s the concept of elasticity of demand which determines the true impact of the price change (Neubert, 2017).

            If the elasticity of demand of Blaine’s product line is very high, a small reduction in price will result in many customers abandoning the product. The company must research on that first. Blaine must also consider whether the reduction in prices will require additional customers to maintain and or surpass existing revenues. If additional customers will not be recruited, then it may be a wrong idea to reduce prices and vice versa (Neubert, 2017).  The company must also carry out further research to determine what the new market will be willing to pay. This is because they may not necessarily be willing to buy the product line at the new price that Blaine is planning to set (Neubert, 2017).

Blaine must also put into consideration elasticity of the market before reducing the price of its product line. If the market is highly elastic, then any change in the price will not result in any incremental sales. In this case the company’s revenue will fall as customers will continue purchasing the same quantities of products at the new price as they did before. In an inelastic market a change in prices will result in a change in quantities purchased that can be noticed. If the market is inelastic, a price reduction would result in a fall in revenues (Neubert, 2017).  If Blaine cuts prices, then the amounts of revenues would fall from that product line.  Lastly, Blaine must be careful not to start a price war which it cannot win. To avoid a price war Dubinsky must carry out a research to determine whether a price war could occur, whether it is necessary and whether it is avoidable. The company should analyze the sensitivity of its products to price changes among others (Neubert, 2017).

1. An analysis of Blaine’s decision to expand its market by selling to restaurants

 The decision to sell to restaurants should not be implemented hurriedly.  The company needs to perform a rigorous market research to determine whether it is strategically and operation wise ready to enter the new market.  Before entering the new market, the company needs to determine its key competitive attributes that will guide the entry strategy (Vassileva & Nikolov, 2016).  The company will then need undertake market intelligence analysis and perform an in-depth research to determine market needs and requirements that will ensure the product line excels in the new market.  The new market will need to be told about the key attributes of the company’s products and their unique selling propositions among others.  The company will next need to develop an entry strategy that is customized to that specific market which will act as the road map. The company will then need to develop and execute the product line marketing plan targeting the restaurant market.  Lastly, Blaine will need to create, measure and drive performance targets for revenues and profits from the restaurant market.  The company will have to create business relationships and sales channels in this new market to optimize revenues (Vassileva & Nikolov, 2016).

An analysis of Brandon Dubinsky, the president of Blaine Kitchenware to move away from the company’s long history of conservative financial management

As from 2004 to 2006 Blaine was hanging onto a lot of cash. However, the most liquid assets namely cash declined 6.87% during the period. Dividend payout ratio grew from 35% in 2004 to 52.9% in 2006.  This implies that in 2006, the company paid more than half of its earnings as dividends to shareholders.  This is not a sustainable position for a company looking forward to grow its business and expand as most of its earnings will end up being paid to stockholders (Das & Parida, 2016).  A young company still in its growth stage would normally have a low dividend payout ratio as it reinvests its earnings to into the business to take advantage of new opportunities to grow revenues. High dividend payout ratios are only tenable for companies that have reached maturity growth stage. Such companies are assumed to have taken advantage of all opportunities that exist in the market and no opportunities exist for them to exploit (Das & Parida, 2016).

            Blaine has not reached that stage and still has opportunities that it can exploit in the market. The company is still growing through acquisitions and intents to enter the restaurant market. High dividend payout ratio is therefore not a viable option.  The company should use its high liquidity position to buy back its shares. This will enable it to lower the dividend payout ratio and fund its expansion activities without sending a negative signal to the market or inviting activist shareholders (Wursthorn, 2019).

A Review of 2004 and 2006 profit margins

 Blaine’s gross margin was 30% in 2004 and it fell to 27% in 2006. This shows that the company is facing challenges in managing its direct costs. The direct costs are rising while its unable to grow its revenues to cover that rise. The net income margin was 18.2% in 2004 and fell to 15.7% in 2006. This implies that the cost running the business is rising.  Blaine will therefore need to find new sources of raw materials and device ways of cutting direct costs to reverse the decline in gross margin (Wursthorn, 2019). The company could as well go ahead and enter the restaurant market which would grow the revenues and grow the gross margin. The company should also consider increasing prices after carefully carrying out research to understand the impact this would increase the net income margin. Lastly, the company could consider cutting costs as that would reverse the decline in net income margin (Shipe, 2016).

Analysis of the problem of holding onto cash and cash equivalents

Holding onto cash and cash equivalents as a company policy has pros and cons. These are liquid assets that should be reinvested to generate revenues for the business. Holding them is losing the benefits that would flow into the company if they had been reinvested. Cash and cash equivalents are liquid assets that are impacted negatively by fluctuations in inflation rates. If inflation rises the value of the cash and cash equivalents decline proportionately (Shipe, 2016). The company will realize that its assets will lose value with passage of time which is not a wise business decision. Thirdly, cash and cash equivalents attract activist shareholders who start demanding that the company pays out the cash as dividends since its idle cash. Lastly Cash and cash equivalents is essentially equity from investors (Shipe, 2016). Whereas investors are waiting for a return from the cash the company will be paying return from other sources not from the assets. The company will therefore be paying a return on funds which are not generating any return to the company (Das & Parida, 2016