Based on the analysis in case Exhibit 9, what is the anticipated CPK share price under each scenario? How many shares will CPK be likely to repurchase under each scenario? What role does the tax deductibility of interest play in encouraging debt financing at CPK?

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% (1) Interest rate Tax rate 6.16% 32.5% 6.16% 32.5% 6.16% 32.5% 6.16% 32.5% Earnings before income taxes and interest(2) Interest expense Earnings before taxes Income taxes 30,054 0 30,054 9,755 20,299 30,054 1,391 28,663 9,303 19,359 30,054 2,783 27,271 8,852 18,419 30,054 4,174 25,880 8,400 17,480 Net income 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 Debt(3) Equity(4) 643,773 643,773 22,589 628,516 651,105 45,178 613,259 658,437 67,766 598,002 665,769 Market value of capital Notes: Interest rate of CPK's credit facility with Bank of America: LIBOR +0.80%. (2) Earnings before interest and taxes (EBIT) include interest income. (3) Market values of debt equal book values. (4) 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