40 10.0 50 12.0 If the company were to recapitalize‚ then debt would be issued and the funds received would be used to repurchase stock. PizzaPalace is in the 40% state-plus-federal corporate tax bracket‚ its beta is 1.0‚ the risk-free rate is 6%‚ and the market risk premium is 6%. ===================================================================================== A
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Brief history of CPK (p.3) Reasons for CPKs success (p.3) Ways to facilitate the success of CPK (p.3-4) Anticipated effect of changing the capital structure on return on equity (p.4) Anticipated effect of changing the capital structure on cost of capital (p.5) Expected number of shares of CPK that can be repurchased (p.6-7) 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
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Module 1 Framework for Analysis and Valuation QUESTIONS Q1-1. Organizations undertake planning activities that shape three major activities: financing‚ investing‚ and operating. Financing is the means a company uses to pay for resources. Investing refers to the buying and selling of resources necessary to carry out the organization’s plans. Operating activities are the actual carrying out of these plans. Planning is the glue that connects these activities‚ including the organization’s ideas
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are missing out on such as a larger tax shield‚ increased ROE and disciplined growth effect. On the negative side; there is also the chance that we run into trouble and it may put a squeeze on project spending and in the most unlikely case land us in bankruptcy if we are not careful. It is my recommendation that we should lever the firm by 30% of debt which should yield us a tax savings to us of roughly $1.35mm per year and boost our ROE to 11.05%. Case Analysis California Pizza Kitchen (CPK)
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Operating Performance ROE and ROA (strength) Dell’s ROE and ROA have different patterns through the life of the case. Dell’s ROA has ranged from a high 18.2% in 1999 then gradually drop to 9.2% in 2008. Dell’s ROE has ranged from 43.7% in 1999 to 61.2% in 2008. Both ROA and ROE dropped significant amount in 2001. Dell’s ROE and ROA are well above the Federal Nominal 10-year T bills rates in all yeas and exceed HP’s ROE and ROA in all years. In 2001‚ HP’s ROE and ROA drop to the lowest point through
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(98%) with an increasing share of college-educated workers (30%). It would seem that UST is very successful at its operations given that it is the most profitable firm in the USA in terms of return on equity (“RoE”)‚ return on assets (“RoA”) and gross profit margin (“GM”). Actual (1998) RoE is at 103.4%‚ RoA at 53.8%‚ GM at 80.1%‚ EBITDA at 55.2% and net margin at 32.9%‚ all those five metrics are up from 1993 respectively at 71.0%; 41.6%; 77.5%; 53.9% and 31.7%. Those five KPIs reflect the strong
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BLAINE KITCHENWARE INC. Blaine Kitchenware was a mid-sized producer of small appliances primarily used in residential kitchens. By 2006‚ the company’s products consisted of a wide range of small kitchen appliances including deep fryers‚ griddles‚ toasters‚ ovens etc. Blaine had just under 10% of the $2.3 billion U.S. market for small kitchen appliances. For the period 2003 to 2006‚ the industry posted modest annual unit sales growth of 2%. In 2006‚ 65% of its revenue was generated from shipments
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a share repurchase to Blaine’s board? What are the expected advantages and disadvantages of such a move? 3. We are not provided a precise share repurchase proposal from the case. Begin by considering the following one: a. Blaine will undertake a $259 million share repurchase. b. Funding i. $209 million from existing cash and marketable securities on its 2006 balance sheet ii. $50 million in new debt at an interest rate of 6.75% c. Repurchase details
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large share repurchase to Blaine’s board? What are the primary advantages and disadvantages of such a move? Again‚ be specific. 3. Consider the following share repurchase proposal: Blaine will use $209 million of cash from its balance sheet and $50 million in new debt-bearing interest at the rate of 6.75% to repurchase 14.0 million shares at a price of $18.50 per share. How would such a buyback affect Blaine? Consider the impact on‚ among other things‚ BKI’s earnings per share and ROE‚ its interest
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recommend a large share repurchase to Blaine’s board? What are the primary advantages and disadvantages of such a move? 3) Consider the following share repurchase proposal: Blain will use $209 million of cash from its balance sheet and $50 million in new debt bearing interest at the rate of 6.75% to repurchase 14.0 million shares at a price of 418.50 per share. How should such a buyback affect Blaine? Consider the impact on‚ among other things‚ BKI’s earnings per share and ROE‚ its interest coverage
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