What role does leverage play in affecting return on equity

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Reference no: EM13994315

California Pizza Kitchen - Case Questions

Please write up a case report with your analysis of the following issues:

1. In what ways can Susan Collyns facilitate the success of CPK?

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? In assessing the effect of leverage on the cost of capital, you may find this equation useful: βL = βU[1+(1-T)D/E].

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?

4. What capital structure policy would you recommend for CPK?

Report format:

No cover page.

You should have about two pages of text, but you cannot go over 2 pages.

No tables or figures in the text. All the table and figure should go to Appendix.

Team members should be listed alphabetically by last names on the top of the first page.

Times New Roman, font size 12, minimum 1.5 line spacing, with margins of at least one inch.

Appendix: All exhibits and tables should be professionally labeled and easily readable.

Following the format requirements will be part of your case grade!

Reference no: EM13994315

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