Case 33

1851 WordsDec 28, 20128 Pages
1. In what ways can Susan Collyns facilitate the success of CPK? a. The avoidance of CPK management to putting any debt in its Balance sheet which relates to the idea of maintaining the borrowing ability needed to support CPK’s expected growth trail but Collyn is convinced with the benefits of leveraging the CPK’s equity; b. Maintain the ASAP restaurants where brand extensions of the company are being disposed. The ASAP restaurants in airport locations numbered 16 and contributed to the revenue and to the success of CPK; c. Maintain the company-owned full-service CPK restaurants which are 170 units and still cite for expansion in other locations locally and internationally; d. Allot more or spend more on marketing the CPK…show more content…
The results show the increase in its financial leverage for the three years. This means that they are having increasing returns for the three years consecutively and utilizing its excess funds in high risk investments in order to maximize returns. 5. 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? The anticipated share price under each scenario in Exhibit 9, would be $20-$22.10.Because CPK used its proceeds from its 2000 IPO to pay off its outstanding debts, the company completely avoided debt financing. Repurchasing shares is one possible leftover retained profit of the firm. In this way, CPK can reduce the numbers of shares held by the public. The reduction of publicly traded shares would mean that even if their profits remain the same, the EPS increase. So, repurchasing shares, particularly when a company 's share price is perceived as undervalued or depressed, may result in a strong return on investment. The group opted for scenario with 20% D/E. This scenario is safer in a sense, since CPK would be earning and at the same time filling in debt into the financial statements. One reason that CPK would rather keep a substantial portion of its
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