Utilizing case data from Figure 9 answer the following questions a. If CPKs Debt/Total Equity Capital Ratio was 10%; iii. What would be CPKs Earnings per share? b. If CPKs Debt/Total Equity Capital Ratio was 20%; iv. What would be CPKs Earnings per share? c. If CPKs Debt/Total Equity Capital Ratio was 30%; v. What would be CPKs Earnings per share?
Exhibit 9 California Pizza Kitchen Pro Forma Tax Shield Effect of Recapitalization Scenarios (dollars in thousands, except share data; figures based on end of June 2007) Debt Total Capital 10% 20% Actual 30% Interest rate) Tax rate 6.16% 32.5% 6.16% 32.5% 6.16% 32.5% 6.16% 32.5% Earnings before income taxes and interest Interest expense Earnings before taxes Income taxes Net income 30,054 0 30,054 9,755 20,299 30,054 1,391 28,663 9,303 19,359 30,054 2,783 27,271 8,852 18,419 30,054 4,174 25,880 8,400 17,480 Book value: Debt Equity Total capital 0 225,888 225,888 22,589 203,299 225,888 45,178 180,710 225,888 67,766 158,122 225,888 67,766 598,002 665,769 Market value: Deb) 0 22,589 45,178 Equity 643,773 628,516 613,259 Market value of capital 643,773 651,105 658,437 Notes: Interest rate of CPK's credit facility with Bank of America: LIBOR +0.80%. Earnings before interest and taxes (EBIT) include interest income. Market values of debt equal book values. Actual market value of equity equals the share price (52210) multiplied by the current number of shares outstanding (29.13 Exhibit 9 California Pizza Kitchen Pro Forma Tax Shield Effect of Recapitalization Scenarios (dollars in thousands, except share data; figures based on end of June 2007) Debt Total Capital 10% 20% Actual 30% Interest rate) Tax rate 6.16% 32.5% 6.16% 32.5% 6.16% 32.5% 6.16% 32.5% Earnings before income taxes and interest Interest expense Earnings before taxes Income taxes Net income 30,054 0 30,054 9,755 20,299 30,054 1,391 28,663 9,303 19,359 30,054 2,783 27,271 8,852 18,419 30,054 4,174 25,880 8,400 17,480 Book value: Debt Equity Total capital 0 225,888 225,888 22,589 203,299 225,888 45,178 180,710 225,888 67,766 158,122 225,888 67,766 598,002 665,769 Market value: Deb) 0 22,589 45,178 Equity 643,773 628,516 613,259 Market value of capital 643,773 651,105 658,437 Notes: Interest rate of CPK's credit facility with Bank of America: LIBOR +0.80%. Earnings before interest and taxes (EBIT) include interest income. Market values of debt equal book values. Actual market value of equity equals the share price (52210) multiplied by the current number of shares outstanding (29.13
