Report on Case analysis of California Pizza Kitchen Course (506): Cases in Financial Decision Making SUBMITTED TO: Dr. M. Sadiqul Islam Professor Department of Finance University of Dhaka SUBMITTED BY: Group 21 MBA 16th Batch Department of Finance University of Dhaka Date of Submission April 08, 2015 Group No: 21 Serial Name BBA ID MBA ID 1 Farhana Bondhon 16-004 16-615 2 Farha Farzana 16-006 16- 727 3 Marufa Akhter 16-132 16- 657 Letter of Transmittal April 08, 2015 Dr. M. Sadiqul Islam Professor Department of Finance University of Dhaka Subject: Submission of Report. Sir, With pleasure, we present to you the report on “case analysis of California Pizza Kitchen” for the fulfillment of the course “Cases in Financial …show more content…
The company had 213 locations in 28 states and 6 foreign countries after the 2nd quarter of 2007. It offers pizzas, pastas, soups, sandwiches, appetizers and desserts. The company also serves travelers on the go and sports fans by operating locations at airports, sports stadiums, and universities in the USA as well as sells its products through grocery stores. In addition, it provides catering for events by offering customized menus as well as enables ordering gift cards online. Further, CPK provides franchising opportunities internationally to companies that own full-service restaurant chains. The case is intended to provide an introduction to the Modigliani and Miller capital structure irrelevance propositions and the concept of debt tax shields, effect of distress cost. The case serves to motivate some important objectives. Those are as follows: 1. Introduce the Modigliani-Miller intuition of capital structure irrelevance 2. Establish how the cost of equity is affected by capital structure decisions by defining financial risk and introducing the levered beta CAPM equation 3. Discuss interest tax deductibility and the valuation tax shields 4. Explore the importance of debt capacity in a growing business California Pizza Kitchen has been operating since 1985 predominantly in California. As of June 2007, they had 213 retail locations in the US and abroad. In the second quarter of 2007, revenue increased 16% while
This paper provides a summary of our analysis of the data obtained for 60 Crusty Dough Pizza Company restaurants. We compared 16 pizza store characteristics to monthly profit in order to determine the best indicators of success. The results of this analysis may be used to determine the store services and attributes that have the most bearing on profitably.
The mixture of debt-equity mix is important so as to maximize the stock price of the Costco. However, it will be significant to consider the Weighted Average Cost of Capital (WACC) as well so that it can evaluate the company targeted capital structure. Cost of capital (OC) may be used by the companies as for long term decision making, so industries that faced to take the important of Cost of capital seriously may not make the right choice by choosing the right project(Gitman’s, ).
PepsiCo faces two very different companies in its most recent potential acquisition. Carts of Colorado is a designer, manufacturer, and merchandiser of mobile food carts – not directly in the food services industry, they do cater to a large corporate customer base along with PepsiCo that includes Coca-Cola, Burger King, Dunkin Donuts, and Mrs. Fields. Alternatively, California Pizza Kitchen is a casual dining restaurant with 25 locations in eight states, typically located in affluent areas.
I would like the dornos to build in my area is a Incredible Pizza. If the dornos build a Incredible Pizza in my area it would make everyone happy because we want have to drive all the way out of town just to throw a party or have fun.Incredible Pizza has games and you can also eat there to so you can do both things at the same time.
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 the lowest average bill cost of any other casual dining restaurant, of $13.30 per guest. Their menu has very few choices, but the choices that are offered are of high quality and nothing less. Their goal is to extend their franchises to Mexico and
Regarding cost of capital, the assumption made by Hudson Bancorp about equity investors somewhat oversimplifies the market. An increase in financial risk decreases a firm’s market value which
The course project involved developing a great depth of knowledge in analyzing capital structure, theories behind it, and its risks and issues. Before I began this assignment, I knew nothing but a few things about capital structure from previous unit weeks; however, it was not until this course’s final project that came along with opening
California Pizza Kitchen (CPA) was founded by Larry Flax & Rick Rosenfield in Beverly Hills 1985. They wanted to make really good pizza at really low prices. They were growing fast and by 2007 they had 213 locations. They had profit of over 6 million and had strong revenue in restaurant sales of up over 15%. Their revenue came from sales at company owned restaurant witch was their main focus because it was 170 units and analysts estimated the potential for CPK was 500 units. Their revenue also came from franchising because a typically agreement gave CPK an initial payment of 50,000 to 65,000 for each store they opened and also gave them a 5% gross sales from each location. A partnership with Kraft Foods gave them a lot of marketing. Even though CPK frozen pizzas was less than 1% of current revenues, Kraft was obligated to spend 5% of gross sales on marketing the CPA frozen pizza brand witch was much more than what they often spent on its own marketing. They were also successful because they had a family friendly environment, excellent ingredients, innovative menu, relatively low prices, they wanted their customers to be satisfied and they attracted relatively wealthy customers. The full service sector was expected to grow 5.1% in the next 5 years witch was casual and fine dining. The subsector of full service segment was expected to have a growth rate of 6.5% in the next 5 years. Their limited service sector witch it fast casual and fast food was expected to grow around
When taxes and bankruptcy costs are considered, a firm has an optimal financial structure determined by that particular mix of debt and equity that minimizes the firm’s cost of capital for a given level of business risk. If the business risk of new projects differs from the risk of existing projects, the optimal mix of debt and equity would change to recognize trade-offs between business and financial risks.
The measuring of future cash flows from the company was determined through a suitable pre-tax discount rate in order to calculate present value. The company also made assumptions about the future sales, vend-in of restaurants to Royalty Pool, tax rates, and terminal growth rates, by brand, which were based on historical experience and expected future performance ("Pizza Pizza Annual Report",2015).
The article, “ The Cost of Capital and Valuation of a Two-County Firm by Michael Adler”, attempts to extend the theory of valuation and the cost of capital when operating in a multinational corporation. In finance, financing decisions have a great importance due to the optimal capital structure, which can be created through the proper mix of finance. Adler attempts to address the issues for which multinational corporation can plan for optimal control with the restrictions of international capital movements. The ability for a corporation to perform well in the market depends on the efficiency of its capital structure. In general, the capital structure of the company may classify into debt and equity. Most companies have mix capital structure which incorporates the mixture of long-term or short-term debt and equity.
To estimate the cost of equity, we need to compute the beta of equity for each division using comparable companies. As the betas of debt were not provided, we made 2 assumptions: a. same business lines have the same beta of debt; b. Expected return of debt = Rf + βb*[E(Rm) – Rf*(1-T)] (Rf: risk free rate, E(Rm): expected
A restaurant that is practicing farm-to-table style presentations is M Street Kitchen which is located at 2000 Main Street in Los Angeles, California. M Street Kitchen is one block away from Venice beach. M Street Kitchen has always stood by having fresh, organic, seasonal, honest, and delicious food at all times. M Street Kitchen was said to be American cooking done right. M Street Kitchen presents simple, accessible modern American cooking using only the freshest ingredients. Some of the items on the breakfast menu include omelettes, French toast, pancakes, and morning sandwiches. Items on the lunch menu include a variety of sandwiches and burgers, tacos, a grilled teriyaki salmon bowl, and a quinoa and forbidden black rice bowl. Dinner
The Modigliani-Miller theorem, which was created by Franco Modigliani and Merton Miller, was essentially the conceptual framework of modern capital structure. Unfortunately, the theorem relies heavily on disregarding many real life variables, however this does not distract from the main point of the theorem. Basically, the Modigliani-Miller theorem states that in a perfect world the modalities in which a
In this study, we tested the empirical effect that a firm’s capital structure has on its corporate value by using a multiple regression estimator framework. All the financial data are obtained from the China Stock Market and Accounting Research (CSMAR) Database. The sample used for this study are automobile firms listed on the A-share section of Shanghai and Shenzhen Stock Exchanges. Because of significant differences between A and B stock markets in China and the lack of horizontal comparability of financial statements for companies listed in different markets, only A-share listed companies are selected. The determination of sample size is based on the availability of data. The steps followed to create the data sample are: