1. Consider the following share repurchase proposal: Blaine will use $209 million of cash from its balance sheet and $50 million in new debt-bearing interest at the rate of 6.75% to repurchase 14.0 million shares at a price of $18.50 per share (Current share price: $16.25). How would such a buyback affect Blaine? Consider the impact on, among other things, Blaine Kitchenware, Inc (BKIs) earnings per share and ROE, its interest coverage and debt ratios, the familys ownership interest, and the companys cost of capital. (Rf=5.02%, Rm= 11%, Beta=0.56)
2. Suppose that Mr. Dubinski has obtained from Blaines banker the quotes below for default spreads over 10-year Treasury bonds [note that these differ from the more general corporate bond yields. What do these quotes imply about BKIs cost of debt at the various debt levels and credit ratings? Compute BKIs weighted average cost of capital at each of the indicated debt levels. What do your calculations imply about Blaines optimal capital structure? Based on these calculations, how many shares should Blaine purchase and at what price?

(Please include Excel result)

BALANCE SHEETS 2004 2005 2006 Assets Cash and equivalents Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Property , Plant & Equipment Goodwill Other Assets Total assets 67,391 218,403 40,709 47,262 2,586 376,351 $ 99,402 8,134 13,331 497,217 $ 70,853 196,763 43,235 49,728 3,871 364,449 $ 138,546 20,439 27,394 550,829 $ 66,557 164,309 48,780 54,874 5,157 339,678 174,321 38,281 39,973 592,253 $ S $ Liabilities & Shareholders' Equity Accounts payable Accrued Liabilities Taxes Payable Total current liabilities Other liabilities Deferred Taxes Total Liabilities Shareholders' Equity Total liabilities and equity 26,106 22,605 14,225 62,935 $ 1,794 1,511 79,840 $ 417,377 497,217 $ 28,589 24,921 17,196 70,705 $ 3,151 18,434 92,290 $ 458,538 550,829 $ 31,936 27,761 16,884 76,581 4,814 22,495 103,890 488,363 592,253 $ $ Exhibit 3 Selected Operating and Financial Data for Public Kitchenware Producers, 12 months ended December 31, 2006, (S in Thousands) Revenue EBIT EBITDA Net income Home & & Hearth Design $589,747 106,763 119,190 $ 53,698 AutoTech Appliances $18,080,000 2,505,200 3,055,200 $1,416,012 XQL Corp. $4,313,300 721,297 796,497 $ 412,307 Bunkerhill, Inc. $3,671,100 566,099 610,399 $ 335,073 Easy Living Systems $ 188,955 19,613 23,356 $ 13,173 Blaine Kitchenware $342,251 63,946 73,860 $ 53,630 Cash & securities Net working capital Net fixed assets Total assets $ 21,495 54,316 900,803 $976,613 $ 536,099 1,247,520 7,463,564 $9,247,183 $ 21,425 353,691 3,322,837 $3,697,952 $ 153,680 334,804 815,304 $1,303,788 $ 242,102 21,220 68,788 $332,110 $ 230,866 32,231 174,321 $ 592,253 $(230,866) Net debtb Total debt Book equity $350,798 372.293 475,377 $4,437 314 4,973,413 3,283,000 $ 950,802 972,227 2,109,400 $ 238,056 391,736 804,400 $ (64,800) 177,302 94,919 488,363 Market capitalization Enterprise value (MVIC) 776,427 $1,127,226 13,978,375 $18,415,689 5,290,145 $6,240,947 3,962,780 $4,200,836 418,749 959,596 $728,730 $ 353,949 Equity beta 1.03 1.24 0.96 0.92 0.67 0.56 LTM Trading Multiples MVIC/Revenue MVIC/EBIT MVIC/EBITDA Market/Book equity 1.91x 10.56x 9.46x 1.63x 1.02x 7.35x 6.03x 4.26x 1.45x 8.65x 7.84x 2.51x 1.14x 7.42x 6.88x 4,93x 1.87x 18.05x 15.15x 4.41 x 2.13x 11.40x 9.87x 1.96x Net Debt/Equity Net Debt/Enterprise Value 45.18% 31.12% 31.74% 24.10% 17.97% 15.23% 6.01% 5.67% -15.47% -18.31% -24.06% -31.68% a. Net working capital excludes cash and securities, b. Net debt is total long-term and short-term debt less excess cash. Interest coverage Rating Debt Rating Default Spread >13.0 AAA 0.65% 9.5 - 12.0 AA- 0.80% A 0.85% 7.0 -9.5 5.0 - 7.00 BBB+ 1.83% 4.0 - 5.0 BB 2.98% 2.50 - 4.0 B+ 4.10% Debt Relationships: FY 2006 EBIT Interest Expense Coverage Ratio AAA AA- 73,860 73,860 4,765 6,423 15.5x 11.5x A 73,860 8,028 9.2x BBB+ 73,860 10,551 7.Ox BB B+ 73,860 73,860 14,069 17,420 5.3x 4.2x Exhibit 4 Contemporaneous Capital Market Data (April 21, 2007) Yields on U.S. Treasury Securities Maturity 30 days 4.55% 60 days 4.73% 90 days 4.91% 1 year 4.90% 5 years 4.91% 10 years 5.02% 5.26% 5.10% Seasoned corporate bond yields Moody's Aaa 5.88% 6.04% A 6.35% Baa 6.72% Ba 7.88% B 8.94% 20 years 30 years Default spread 0.86% 1.02% 1.33% 1.70% 2.86% 3.92% BALANCE SHEETS 2004 2005 2006 Assets Cash and equivalents Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Property , Plant & Equipment Goodwill Other Assets Total assets 67,391 218,403 40,709 47,262 2,586 376,351 $ 99,402 8,134 13,331 497,217 $ 70,853 196,763 43,235 49,728 3,871 364,449 $ 138,546 20,439 27,394 550,829 $ 66,557 164,309 48,780 54,874 5,157 339,678 174,321 38,281 39,973 592,253 $ S $ Liabilities & Shareholders' Equity Accounts payable Accrued Liabilities Taxes Payable Total current liabilities Other liabilities Deferred Taxes Total Liabilities Shareholders' Equity Total liabilities and equity 26,106 22,605 14,225 62,935 $ 1,794 1,511 79,840 $ 417,377 497,217 $ 28,589 24,921 17,196 70,705 $ 3,151 18,434 92,290 $ 458,538 550,829 $ 31,936 27,761 16,884 76,581 4,814 22,495 103,890 488,363 592,253 $ $ Exhibit 3 Selected Operating and Financial Data for Public Kitchenware Producers, 12 months ended December 31, 2006, (S in Thousands) Revenue EBIT EBITDA Net income Home & & Hearth Design $589,747 106,763 119,190 $ 53,698 AutoTech Appliances $18,080,000 2,505,200 3,055,200 $1,416,012 XQL Corp. $4,313,300 721,297 796,497 $ 412,307 Bunkerhill, Inc. $3,671,100 566,099 610,399 $ 335,073 Easy Living Systems $ 188,955 19,613 23,356 $ 13,173 Blaine Kitchenware $342,251 63,946 73,860 $ 53,630 Cash & securities Net working capital Net fixed assets Total assets $ 21,495 54,316 900,803 $976,613 $ 536,099 1,247,520 7,463,564 $9,247,183 $ 21,425 353,691 3,322,837 $3,697,952 $ 153,680 334,804 815,304 $1,303,788 $ 242,102 21,220 68,788 $332,110 $ 230,866 32,231 174,321 $ 592,253 $(230,866) Net debtb Total debt Book equity $350,798 372.293 475,377 $4,437 314 4,973,413 3,283,000 $ 950,802 972,227 2,109,400 $ 238,056 391,736 804,400 $ (64,800) 177,302 94,919 488,363 Market capitalization Enterprise value (MVIC) 776,427 $1,127,226 13,978,375 $18,415,689 5,290,145 $6,240,947 3,962,780 $4,200,836 418,749 959,596 $728,730 $ 353,949 Equity beta 1.03 1.24 0.96 0.92 0.67 0.56 LTM Trading Multiples MVIC/Revenue MVIC/EBIT MVIC/EBITDA Market/Book equity 1.91x 10.56x 9.46x 1.63x 1.02x 7.35x 6.03x 4.26x 1.45x 8.65x 7.84x 2.51x 1.14x 7.42x 6.88x 4,93x 1.87x 18.05x 15.15x 4.41 x 2.13x 11.40x 9.87x 1.96x Net Debt/Equity Net Debt/Enterprise Value 45.18% 31.12% 31.74% 24.10% 17.97% 15.23% 6.01% 5.67% -15.47% -18.31% -24.06% -31.68% a. Net working capital excludes cash and securities, b. Net debt is total long-term and short-term debt less excess cash. Interest coverage Rating Debt Rating Default Spread >13.0 AAA 0.65% 9.5 - 12.0 AA- 0.80% A 0.85% 7.0 -9.5 5.0 - 7.00 BBB+ 1.83% 4.0 - 5.0 BB 2.98% 2.50 - 4.0 B+ 4.10% Debt Relationships: FY 2006 EBIT Interest Expense Coverage Ratio AAA AA- 73,860 73,860 4,765 6,423 15.5x 11.5x A 73,860 8,028 9.2x BBB+ 73,860 10,551 7.Ox BB B+ 73,860 73,860 14,069 17,420 5.3x 4.2x Exhibit 4 Contemporaneous Capital Market Data (April 21, 2007) Yields on U.S. Treasury Securities Maturity 30 days 4.55% 60 days 4.73% 90 days 4.91% 1 year 4.90% 5 years 4.91% 10 years 5.02% 5.26% 5.10% Seasoned corporate bond yields Moody's Aaa 5.88% 6.04% A 6.35% Baa 6.72% Ba 7.88% B 8.94% 20 years 30 years Default spread 0.86% 1.02% 1.33% 1.70% 2.86% 3.92%