Discussion Questions for Case 6 (California Pizza Kitchen)
Executive Summary (what is the case about? Which decision needed to be made?)
CPK Business Overview (What they do? Their historical performance?)
Conduct Scenarios Analysis on Leverage and ROE
1. What is going on at CPK? What decisions does Susan Collyns face?
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?
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?