Does Panera need to take on debt to fund the $75 million stock repurchase?
Recommendations: * We recommend financing the stock repurchase using a $75MM long term loan. * We want to maintain a safe cash balance in order to meet short term obligations. * Taking on debt gives the company the ability to use cash for projects and short term investments. * We want to avoid sacrificing our liquidity ratios in order to finance this repurchase. * * We do not recommend taking on debt beyond the $75M needed to repurchase stock. * The company has sufficient liquidity to finance ongoing operations without taking on additional debt. * Taking on debt more than
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* General and administrative expenses are following a falling trend year over year. * We decreased this cost by discounting the previous year’s ratio by 3% each period. * We assumed interest expense to be zero for all forecasted periods. * The amount of interest Panera pays on short term debt is negligible. * Panera does not have long term debt and pays off short term debt each year. * Historical interest expense was $72,000 average per annum. * We used the historical average tax rate of 36.5% to calculate tax expense. * Current assets were calculated as a percentage of revenue. * Current assets were decreasing each year as a percentage of revenue. * We continued this trend by discounting CA as a percent of revenue by 1.7% * We calculated PPE using a high growth period followed by a low growth period. * We grew PPE 20% from 2008-2009 based on a rising trend historical trend * We grew PPE 3% from 2010-2012 to mirror our revenue trend predictions. * We did not want to base PPE directly off revenue because PPE and revenue are not perfectly correlated. * Investment in new locations and equipment usually preempt growth in revenue. * Goodwill and Other Assets are calculated using historic percentage of sales. * Goodwill is grown at a rate of 20% for 2008 and