California Pizza Kitchen Chris Schroeder FI 602: Financial Strategy and Valuation Fang Chen September 21‚ 2012 Introduction In July of 2007‚ California Pizza Kitchen (CPK)‚ a casual dining pizzeria started in California by co-owners Rick Rosenfield and Larry Flax‚ was faced with the decision to invest in a stock repurchase program. Led by Chief Financial Officer Susan Collyns‚ the financial team of CPK was reviewing the preliminary results for the second quarter to determine if the stock
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Case #33 California Pizza Kitchen Synopsis and Objectives This case examines the question of financial leverage at California Pizza Kitchen (CPK) in July 2007. With a highly profitable business and an aversion to debt‚ CPK management is considering a debt-financed stock buyback program. The case is intended to provide an introduction to the Modigliani-Miller capital structure irrelevance propositions and the concept of debt tax shields. With the background of a pizza company‚ the case provides
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UVA-F-DRAFT Version 1.0 CALIFORNIA PIZZA KITCHEN Everyone knows that 95 percent of restaurants fail in the first two years‚ and a lot of people think it’s ‘location‚ location‚ location.’ It could be‚ but my experience is you have to have the financial staying power. You could have the greatest idea‚ but many restaurants do not start out making money – they build over time. So it’s really about having the capital and the staying power. — Rick Rosenfield‚ Co-CEO‚ California Pizza Kitchen1 In early
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Preparatory Questions for California Pizza Kitchen 1. In what ways can Susan Collins facilitate the cusses of CPK? 2. Using the scenarios in case Exhibit 9‚ what roles does leverage play in affecting the return on equity (ROE) for CPK? What about the cost of capital? a. Leverage increases Beta for the firm since debt to equity ratio increases from unlevered beta. We use 10 year Treasury bond as our risk free rate and for market risk premium we use current prime lending rate for June 2007
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Introduction to California Pizza Kitchen California Pizza Kitchen is known worldwide for its high quality menu and ingredients‚ with budget friendly prices. They collect their revenues from three different sources. Sales from company owned restaurants‚ royalties from franchised restaurants and royalties from a partnership with Kraft to sell CPK branded frozen pizza in grocery stores. CPK has a "dedication to guest satisfaction and menu innovation and sustainable culture of service." CPK has
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Case 33: California Pizza Kitchen California Pizza Kitchen (CPK) was co-founded in 1985 in Beverly Hills‚ California by Rick Rosenfield and Larry Flax. Rosenfield and Flax both hold the title of Co-President‚ Co-CEO‚ and Co-Chairman of the Board of Directors for California Pizza Kitchen. Susan Collyns‚ Chief Financial Officer‚ currently leads the financial team at California Pizza Kitchen which is faced with reducing the corporate income-tax liability while balancing the goal of the management
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California Pizza Kitchen Summary California Pizza Kitchen is an upscale pizza parlor based out of California. It was founded in 1985 by defense attorneys Larry Flax and Rick Rosenfield in Beverly Hills‚ California. The company has 213 stores with approximately 41% of the stores located in California‚ 6 in foreign counties and the rest scattered throughout 27 other states in the U.S. It derives its revenues from three different sources: sales at company owned restaurants‚ royalties from franchised
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Anticipated effect of changing the capital structure on CPKs stock price (p.6-7) Our recommendation (p.7) In order to explore whether or not California Pizza Kitchen should change their capital structure‚ we must first look at the brief history of the firm to get a better idea of the corporate culture and the firms appetite for risk. California Pizza Kitchen started in 1985 and they have been rather successful given that 95 of all restaurants fail in the first two years. They did not fail and even
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California Pizza Kitchen California Pizza Kitchen was first created in 1985 in Beverly Hills‚ California. By 2007 there were 213 locations throughout 28 states and 6 countries. Although 41% of the stores were based in California‚ keeping with the restaurants theme‚ the dining model flourished throughout the United States. For the second quarter of 2007‚ although they were faced with industry challenges such as raised commodity‚ labor and energy costs‚ they were still expected to break quarterly
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Executive Summary California Pizza Kitchen (CPK) was founded in 1985 by Larry Flax and Rick Rosenfield with a vision of offering customers designer pizza at reasonable prices. CPK’s target market is geared towards affluent customers making $75‚000 annually‚ and over the span of 2 decades the business was able to grow from a single location into 213 locations across 28 states and 6 foreign countries. CPK generates revenue from 3 main sources: company restaurants‚ franchises‚ and royalties. CPK stands
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