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Posted on Jul 10, 2024

Problem 2. Unnamed Pizza Company Unnamed Pizza Company (UPC) is a Louisiana based pizza store well-known for its signature Cajun style pizza, which has crawfish,

image text in transcribed Problem 2. Unnamed Pizza Company Unnamed Pizza Company (UPC) is a Louisiana based pizza store well-known for its signature Cajun style pizza, which has crawfish, shrimp, crab and oysters as toppings mixed with red hot Louisiana Cajun sauce. It was founded by four MBA students who took FINC 516 together. UPC has seen an incredible growth in the past 10 years. From a single food truck to fifty chains operating in Louisiana, Arkansas, and Texas, UPC reported total sales of $150 million with total assets of $50 million. Different from other competitors in the casual dining restaurant industry, UPC derived its sales mainly from grab-n-go service, which accounts for 55% of total sales, while dine-in accounts for 30% and the rest are delivery. Founders of UPC are fans of 'no borrow, low debt'. With 50% debt capacity, UPC has a D/E ratio of only 0.1. Two components made up UPC's debt. One is a $2 million short-term loan with Origin Bank at an interest rate of 9.45%. The other is a 10-year bond with an annual coupon rate of 4.2% (paid semiannually). The marginal tax rate is 35% for UPC. See detailed information on UPCs peers and capital market conditions in the excel spreadsheet. Please help the UPC manager to estimate the cost of capital. The 10-year bond is currently trading at 92.3 (% of par) and is rated by S&P at BBB.

Capital Market Conditions as of December 31, 2020 U.S. Treasury Obligations Yield 3 mos. 1.670% 6 mos. 1.710% 2.310% 4.090% 4.860% 5.650% 1 yr. 5 yr. 10 yr. 30 yr. Corporate Debt Obligations (10 year) Yield AAA AAA A BBB BB B 9.307% 9.786% 10.083% 10.894% 12.753% 14.663% Unnamed Pizza Company California Pizza Kitchen Applebee's International, Inc. BJ's Restaurants, Inc. Brinker International Buffalo Wild Wings, Incorporated The Cheesecake Factory, Inc. Chipotle Mexican Grill, Inc. Darden Restaurants, Inc. Frisch's Restaurants, Inc. McCormick & Schmick's Panera Bread Company P.F. Chang's China Bistro RARE Hospitality International Inc. Red Robin Gourmet Burgers Ruth's Chris Steak House, Inc. Sonic Corporation Texas Roadhouse, Inc. Current Assets 16 38 105 96 242 75 203 179 378 12 30 128 65 125 29 26 43 Current Liabilities 13 66 187 36 497 26 163 61 1,026 31 40 110 104 134 70 59 78 78 Total Debt 5 0 175 0 502 0 0 0 645 43 Shr. Equity 45 208 487 203 1,076 116 712 474 1,230 101 160 398 290 360 244 68 392 319 Debt/ Interest T. Capital Capital Coverage Turnover 10.0% 15.6% 3.0 0.0% NMF 2.7 26.5% 11.7 2.0 0.0% NMF 1.2 31.8% 14.4 2.6 0.0% NMF 2.4 0.0% NMF 1.8 0.0% NMF 1.7 34.4% 10.9 3.1 30.1% 5.9 2.0 0.2% NMF 1.9 0.0% NMF 2.1 6.2% NMF 3.0 31.6% 29.2 1.9 31.9% 7.7 1.7 50.0% 12.8 2.0 28.9% 15.0 1.3 10.2% 19.9 1.7 Return On Capital Equity 39.0% 43.3% 10.1% 10.1% 14.0% 18.0% 4.9% 4.9% 13.2% 18.0% 14.0% 14.0% 11.4% 11.4% 8.8% 8.7% 20.6% 27.5% 7.9% 9.1% 8.3% 8.3% 15.1% 15.1% 11.1% 11.5% 9.8% 13.9% 9.3% 12.5% 18.6% 34.9% 15.3% 20.1% 9.7% 10.7% 0 0 19 166 114 68 159 53 36 12/31/20 Share Price EBITDA Margin Net Profit Earnings Dividends Book Value Margin Per Share Per Share Per Share Revenue Beta $ $ $ $ $ $ Unnamed Pizza Company California Pizza Kitchen Applebee's International, Inc. BJ's Restaurants, Inc. Brinker International Buffalo Wild Wings, Incorporated The Cheesecake Factory, Inc. Chipotle Mexican Grill, Inc. Darden Restaurants, Inc. Frisch's Restaurants, Inc. McCormick & Schmick's Panera Bread Company P.F. Chang's China Bistro RARE Hospitality International Inc. Red Robin Gourmet Burgers Ruth's Chris Steak House, Inc. Sonic Corporation Texas Roadhouse, Inc. $ $ $ $ $ $ n/a 22.10 24.28 20.05 29.37 41.78 24.57 86.00 44.14 30.54 25.66 46.02 35.37 26.76 40.19 16.80 22.00 12.81 150 555 1,338 239 4,151 278 1,315 823 5,721 291 308 829 938 987 619 272 693 597 23.0% 10.7% 15.9% 9.6% 12.0% 13.3% 12.2% 13.0% 13.2% 31.6% 9.7% 16.3% 10.5% 11.6% 13.7% 15.6% 24.9% 12.5% 13.0% 3.8% 6.5% 4.1% 4.7% 5.8% 6.2% 5.0% 5.9% 3.1% 4.3% 7.2% 3.6% 5.1% 4.9% 8.7% 11.4% 5.7% n/a 0.71 1.17 0.41 1.49 0.93 1.02 1.28 2.16 1.78 0.92 1.87 1.24 1.45 1.82 1.01 0.88 0.44 n/a 0.00 0.20 0.00 0.20 0.00 0.00 0.00 0.40 0.44 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 n/a 7.20 6.49 7.78 8.59 6.61 9.09 14.56 8.37 19.84 11.20 12.53 11.41 11.17 14.68 2.93 4.66 4.30 n/a 0.85 0.80 1.05 0.90 1.10 1.00 n/a 1.00 0.60 1.10 1.25 1.10 0.57 1.05 n/a 0.90 0.90 $ $ $ $ Capital Market Conditions as of December 31, 2020 U.S. Treasury Obligations Yield 3 mos. 1.670% 6 mos. 1.710% 2.310% 4.090% 4.860% 5.650% 1 yr. 5 yr. 10 yr. 30 yr. Corporate Debt Obligations (10 year) Yield AAA AAA A BBB BB B 9.307% 9.786% 10.083% 10.894% 12.753% 14.663% Unnamed Pizza Company California Pizza Kitchen Applebee's International, Inc. BJ's Restaurants, Inc. Brinker International Buffalo Wild Wings, Incorporated The Cheesecake Factory, Inc. Chipotle Mexican Grill, Inc. Darden Restaurants, Inc. Frisch's Restaurants, Inc. McCormick & Schmick's Panera Bread Company P.F. Chang's China Bistro RARE Hospitality International Inc. Red Robin Gourmet Burgers Ruth's Chris Steak House, Inc. Sonic Corporation Texas Roadhouse, Inc. Current Assets 16 38 105 96 242 75 203 179 378 12 30 128 65 125 29 26 43 Current Liabilities 13 66 187 36 497 26 163 61 1,026 31 40 110 104 134 70 59 78 78 Total Debt 5 0 175 0 502 0 0 0 645 43 Shr. Equity 45 208 487 203 1,076 116 712 474 1,230 101 160 398 290 360 244 68 392 319 Debt/ Interest T. Capital Capital Coverage Turnover 10.0% 15.6% 3.0 0.0% NMF 2.7 26.5% 11.7 2.0 0.0% NMF 1.2 31.8% 14.4 2.6 0.0% NMF 2.4 0.0% NMF 1.8 0.0% NMF 1.7 34.4% 10.9 3.1 30.1% 5.9 2.0 0.2% NMF 1.9 0.0% NMF 2.1 6.2% NMF 3.0 31.6% 29.2 1.9 31.9% 7.7 1.7 50.0% 12.8 2.0 28.9% 15.0 1.3 10.2% 19.9 1.7 Return On Capital Equity 39.0% 43.3% 10.1% 10.1% 14.0% 18.0% 4.9% 4.9% 13.2% 18.0% 14.0% 14.0% 11.4% 11.4% 8.8% 8.7% 20.6% 27.5% 7.9% 9.1% 8.3% 8.3% 15.1% 15.1% 11.1% 11.5% 9.8% 13.9% 9.3% 12.5% 18.6% 34.9% 15.3% 20.1% 9.7% 10.7% 0 0 19 166 114 68 159 53 36 12/31/20 Share Price EBITDA Margin Net Profit Earnings Dividends Book Value Margin Per Share Per Share Per Share Revenue Beta $ $ $ $ $ $ Unnamed Pizza Company California Pizza Kitchen Applebee's International, Inc. BJ's Restaurants, Inc. Brinker International Buffalo Wild Wings, Incorporated The Cheesecake Factory, Inc. Chipotle Mexican Grill, Inc. Darden Restaurants, Inc. Frisch's Restaurants, Inc. McCormick & Schmick's Panera Bread Company P.F. Chang's China Bistro RARE Hospitality International Inc. Red Robin Gourmet Burgers Ruth's Chris Steak House, Inc. Sonic Corporation Texas Roadhouse, Inc. $ $ $ $ $ $ n/a 22.10 24.28 20.05 29.37 41.78 24.57 86.00 44.14 30.54 25.66 46.02 35.37 26.76 40.19 16.80 22.00 12.81 150 555 1,338 239 4,151 278 1,315 823 5,721 291 308 829 938 987 619 272 693 597 23.0% 10.7% 15.9% 9.6% 12.0% 13.3% 12.2% 13.0% 13.2% 31.6% 9.7% 16.3% 10.5% 11.6% 13.7% 15.6% 24.9% 12.5% 13.0% 3.8% 6.5% 4.1% 4.7% 5.8% 6.2% 5.0% 5.9% 3.1% 4.3% 7.2% 3.6% 5.1% 4.9% 8.7% 11.4% 5.7% n/a 0.71 1.17 0.41 1.49 0.93 1.02 1.28 2.16 1.78 0.92 1.87 1.24 1.45 1.82 1.01 0.88 0.44 n/a 0.00 0.20 0.00 0.20 0.00 0.00 0.00 0.40 0.44 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 n/a 7.20 6.49 7.78 8.59 6.61 9.09 14.56 8.37 19.84 11.20 12.53 11.41 11.17 14.68 2.93 4.66 4.30 n/a 0.85 0.80 1.05 0.90 1.10 1.00 n/a 1.00 0.60 1.10 1.25 1.10 0.57 1.05 n/a 0.90 0.90 $ $ $ $