Utilizing case data from Figure 9 answer the following questions a. If CPKs Debt/Total Equity Capital Ratio was 10%; iii. What would be CPKs Cost of equity? b. If CPKs Debt/Total Equity Capital Ratio was 20%; iv. What would be CPKs Cost of equity? c. If CPKs Debt/Total Equity Capital Ratio was 30%;

v. What would be CPKs Cost of equity?

Exhibit 9 CALIFORNIA PIZZA KITCHEN Pro Forma Tax Shield Effect of Recapitalization Scenarios (dollars in thousands, except share data; figures based on end of June 2007) Debt/Total Capital 10% 20% Actual 30% Interest rate (1) 6.16% 32.5% 6.16% 32.5% 6.16% 32.5% 6.16% 32.5% Tax rate Earnings before income taxes and interest(2) Interest expense Earnings before taxes Income taxes 30,054 1,391 30,054 0 30,054 9,755 20,299 28,663 9,303 30.054 2,783 27,271 8.852 18,419 30.054 4,174 25,880 8,400 17,480 Net income 19,359 Book value: Debt Equity Total capital 0 225.888 225,888 22,589 203,299 225,888 45,178 180,710 225,888 67,766 158,122 225,888 Market value: 0 22,589 45,178 67,766 Debt() Equity(4) 613.259 643,773 643,773 628,516 651,105 598,002 665,769 Market value of capital 658,437 Notes: (1) Interest rate of CPK's credit facility with Bank of America: LIBOR +0.80%. (2) Earnings before interest and taxes (EBIT) include interest income. > Market values of debt equal book values. (1) Actual market value of equity equals the share price ($22.10) multiplied by the current number of shares outstanding (29.13 million). Source: Case writer analysis based on CPK financial data. Exhibit 9 CALIFORNIA PIZZA KITCHEN Pro Forma Tax Shield Effect of Recapitalization Scenarios (dollars in thousands, except share data; figures based on end of June 2007) Debt/Total Capital 10% 20% Actual 30% Interest rate (1) 6.16% 32.5% 6.16% 32.5% 6.16% 32.5% 6.16% 32.5% Tax rate Earnings before income taxes and interest(2) Interest expense Earnings before taxes Income taxes 30,054 1,391 30,054 0 30,054 9,755 20,299 28,663 9,303 30.054 2,783 27,271 8.852 18,419 30.054 4,174 25,880 8,400 17,480 Net income 19,359 Book value: Debt Equity Total capital 0 225.888 225,888 22,589 203,299 225,888 45,178 180,710 225,888 67,766 158,122 225,888 Market value: 0 22,589 45,178 67,766 Debt() Equity(4) 613.259 643,773 643,773 628,516 651,105 598,002 665,769 Market value of capital 658,437 Notes: (1) Interest rate of CPK's credit facility with Bank of America: LIBOR +0.80%. (2) Earnings before interest and taxes (EBIT) include interest income. > Market values of debt equal book values. (1) Actual market value of equity equals the share price ($22.10) multiplied by the current number of shares outstanding (29.13 million). Source: Case writer analysis based on CPK financial data