Suggested Discussion Questions1. Provide a brief description of California Pizza Kitchen.
California Pizza Kitchen (CPK) is a restaurants services company that operates a casual dining chain, with a particular focus on the premium pizza segment. The company is headquartered inLos Angeles, California and employs 14,800 people as on December 30th, 2007. The company recorded revenues of $633 million during the fiscal year ended December 2007, an increase of14.1% over 2006. The increase in revenue was driven from its full service restaurants, ASAP restaurants and from LA Food Show. The operating profit of the company was $22 million during fiscal year 2007, a decrease of 28.3% compared with 2006. The net profit was $15million, a decrease of 29.5% compared with 2006. In 1985 the California Pizza Kitchen was created by Rick Rosenfield and Larry Flax in Beverly Hills, California. Rosenfield and Flax both hold the title of Co-President, Co-CEO, and Co-Chairman of the Board of Directors for CaliforniaPizza Kitchen. It was known for its hearth-baked barbeque-chicken pizza, the “designer pizza at off-at-the-rack prices” concept flourished.2. How do you think about the Restaurant Industry I think the restaurant industry is the industry of professional restaurants, bars, and other food service providers that allow customers to enter, order food, and eat on the premises. This term can be used in a number of different settings and can refer to just about any type of eatery, from the most expensive restaurants to fast-food locations. These can be standalone restaurants located as part of a plaza or as a remote location, or restaurants that can be attached to hotels or casinos. The restaurant industry is typically considered part of the hospitality industry and employs a number of different types of employees, from chefs and waiters to managers and bartenders.3. How do you compare the performance of California…

California Pizza Kitchen Essay

Preparatory Questions for California Pizza Kitchen

1. In what ways can Susan Collins facilitate the cusses of CPK?

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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 minus10 year TRSY bond. Using these assumptions with increase in Debt, cost of equity increases for all the different capital structures. Interesting observation with cost of capital is that having debt in your capital structure decreases your WACC because of the benefit of tax shield. b. As equity value decreases with increase in debt value, ROE decreases with debt increasing in the capital structure. (more…)

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