Suppose that Mr. Dubinski has obtained from Blaine's banker the quotes below for default spreads over 10-year Treasury bonds (note that these differ from the more general corporate bonds yields in case Exhibit 4) What do these quotes imply about BKI's cost of debt at the various debt levels and credit ratings? You can construct a debt waterfall for BKI and each different cost of debt from the different rated credit instruments.

Compute your own assessment of BKI's weighted average cost of capital at each of the indicated debt levels. What do your calculations imply about Blaine's optimal capital structure? (the case gives you Blaines equity Betas YOY, and the cost of debt. The Exhibit on page 3 of the Case can give you a partial basis for estimating required return of the market)

Based on these calculations, how many shares should Blaine purchase and at what price?

Exhibit 1 Blaine Kitchenware, Inc., Income Statements, years ended December 31, (\$ in Thousands) a. Blaine's future tax rate was expected to rise to the statutory rate of 40%. Exhibit 2 Blaine Kitchenware, Inc. Balance Sheets, December 31, (\$ in Thousands) Note: Many items in bKI's historical balance sheets (e.g., Property, Plant \& Equipment) have been attected by the fir acquisitions. xhibit 3 Selected Operating and Financial Data for Public Kitchenware Producers, 12 months ended December 31, 2006, (\$ in Thousands) Exhibit 1 Blaine Kitchenware, Inc., Income Statements, years ended December 31, (\$ in Thousands) a. Blaine's future tax rate was expected to rise to the statutory rate of 40%. Exhibit 2 Blaine Kitchenware, Inc. Balance Sheets, December 31, (\$ in Thousands) Note: Many items in bKI's historical balance sheets (e.g., Property, Plant \& Equipment) have been attected by the fir acquisitions. xhibit 3 Selected Operating and Financial Data for Public Kitchenware Producers, 12 months ended December 31, 2006, (\$ in Thousands)