You have been hired as a consultant toVictor Dubinski, the CEO of Blaine Kitchenware. You are charged with putting together a written report with supportingnumerical analysis that addresses the following items:

1. Isthe current capital structure and payout policy for Blaine optimal?  Explain and justify your conclusion.  Use numbers whenever possible.

2. ShouldBlaine recommend a large share repurchase to the Board of Directors?  What are the advantages and disadvantages ofthis action?  Again, explain and justifyyour conclusions.  Use numbers wheneverpossible.

3. Considertwo specific share repurchase proposals:

   1. First Proposal

      1. Blaine will issue $50 million innew debt at an interest rate of 6.75%

      2. Blaine will use $209 million ofcash from its balance sheet

      3. Blaine will use these two sourcesof cash to repurchase 14 million shares at $18.50/share.

Supporting documentation is attached.