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Case 33. California Pizza Kitchen. 1. Background Though CPK has showed strong performance, its stock price has gone down by 10%. Management team started to discuss stock repurchase with debts. Since the year of 2000, CPK management avoided putting debts on the balance sheet.

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1. Background

  • Though CPK has showed strong performance, its stock price has gone down by 10%. Management team started to discuss stock repurchase with debts. Since the year of 2000, CPK management avoided putting debts on the balance sheet.

  • Recently CPK issued 50% stock dividend (3 for 2 stock split effect).


2. Questions

  • 1) Summarize the business of California Pizza Kitchen and Restaurant Industry.

  • 2) How much is needed to borrow to repurchase stocks in order to improve stock price? 15.6 in Ch15.

  • 3) What is weighted average cost of capital at the optimal borrowing level? Section 15.5 in Ch15.

  • 4) What is EPS at the optimal borrowing level?



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