CaliforniaCalifornia Pizza Kitchen Assignment Questions
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? 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?
3. What capital structure policy would you recommend for CPK? (Explain)
1. I think that the CFO, Susan Collyns, could facilitate success of the firm by implementing the following measures:
A. Increase the advertising spending.
According to the article that CPK spent 1% of its sales on advertising, less than the 3% to 4% of sales that casual dining competitors, such as Chili’s, Red Lobster, Olive Garden and Outback Steakhouse, spent annually.CPK is using the word of mouth advertising to attract more and more coustomers for their traffic.so advertising spending is one of most important factor for CPK success.
B. Increase leverage using debt financing by changing the existing capital structure and purchasing US treasure securities
CPK used the proceeds from its 2000 initial public offering to pay off its outstanding debt and completely avoided debt financing.
C. Repurchase the company’s stock
Becase of their recent 10 ％ share price decrease,it is a good change for they to repurchase their stock at a lower price. The main goal for the use of financing is to balance the return capital to shareholders with management’s goal of growing the business.