What capital structure policy would you recommend for CPK?California Pizza Kitchen • Write an executive summary focusing your analysis on the principal issues of the case.
California Pizza Kitchen
Areas to Explore: California Pizza Kitchen
Student Study Questions/Areas to Explore
1. In what ways can Susan Collyns facilitate the success of CPK?
2. Using the scenarios in case Exhibit 9, what role does leverage play in affecting the return on equity (ROE) for CPK? What about the cost of capital? In assessing the effect of leverage on the cost of capital, you may assume that a firm\’s CAPM beta be modeled in the following manner: BL = BU [1 + (1-T) D/E], where BU is the firm\’s beta without leverage, T is the corporate income tax rate, D is the market value of debt, and E is the market value of equity.
3. 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?
4. What capital structure policy would you recommend for CPK?California Pizza Kitchen
• Write an executive summary focusing your analysis on the principal issues of the case.
• The audience is a mid-level executive; time is short and they might not read the whole work, so lead with the meat of your conclusion.
• Assume your audience is familiar with the companies, principals, and environment: focus on the problem and your solution.
• Presentation matters, so formal language and no typos. Proof read your work.
• Please present your solution to the main issue, discuss any key alternatives and why they were rejected, and significant risks involved with the solution (or other unknown factors that could alter the analysis).• Length should target one single spaced page, no smaller than 11 pt. font, and certainly be no longer than two pages. If charts or calculations are needed, they may be included as an appendix (only text will count to the page limit, but don\’t go overboard).All needed information attached
