Case Name :      California Pizza Kitchen

Authors :           Michael J. Schill, Elizabeth Shumadine

Source :             Darden School of Business

Case ID :           UV1203

Discipline :        Finance

Case Length :    17 pages

Solution Sample availability : YES

Plagiarism : NO (100% Original work)

This case examines the question of financial leverage at California Pizza Kitchen (CPK) in July 2007. With a highly profitable business and an aversion to debt, CPK management is considering a debt-financed stock buyback program. The case is intended to provide an introduction to the Modigliani and Miller capital structure irrelevance propositions and the concept of debt tax shields. With the background of a pizza company, the case provides an engaging context to discuss the “pizza graphs” that are commonly used in corporate finance curriculum to illustrate the wealth effects of capital structure decisions.