Q-1: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?

Q-2:What capital structure policy would you recommend for CPK, and why? Please justify your recommendation.

Note: Based on following data how I can come up with the solutions. Two questions were mentioned above.

Case1

Exhibit 9		Debt/Total Capital
	Actual	10%	20%	30%
ROE	8.99%	9.52%	10.19%	11.05%
Cost of Debt (rd)	6.16%	0.0616	0.0616	0.0616	Page 1 of 1		41
Market Value Weights of					Page 1 of 1		41
Debt	0.00%	3.47%	6.86%	10.18%	Page 1 of 1		41
Equity	100.00%	96.53%	93.14%	89.82%	Page 1 of 1		41
Levered Beta	85.00%	87.06%	89.23%	91.50%	Page 1 of 1		41
Risk-Free Rate	5.25%	0.0525	0.0525	0.0525	Page 1 of 1		41
Market Premium	5.00%	0.05	0.05	0.05	Page 1 of 1		41
Cost of Equity (re)	9.50%	9.60%	9.71%	9.83%	Page 1 of 1		41
WACC	9.50%	9.41%	9.33%	9.25%	Page 1 of 1		41
					Page 1 of 1		41
					Page 1 of 1		41
					Page 1 of 1		41
Current Share Price	22.10	22.1	22.1	22.1	Page 1 of 1		41
Current Outstanding Shares	29130000.00	29130000	29130000	29130000	Page 1 of 1		41
Present Value for Tax Savings	0	7341425	14682850	22023950	Page 1 of 1		41
Tax Savings for each stock	0.00%	7341425	14682850	22023950	Page 1 of 1		41
New Share Price	22.10	22.35	22.60	22.86
Number of Shares Repurchased	0.00	1010602.05	1998668.76	2964903.31
New Outstanding Shares	29130000.00	28119397.95	27131331.24	26165096.69