Panera Bread Company Case Instructions

This case is used to discuss multi-period financial forecasts and the relative desirability of various financing sources. As 2007 drew to a close, Panera Bread Company faced a new challenge. To date, it had relied on retained earnings and minor equity infusions to finance operations. But a decline in margins would limit future financing from internally generated funds. Complicating matters was the fact that its stock price was at historic lows and management was contemplating a large equity repurchase.

Questions:

1. Complete the financing portion of Panera Bread Companys 2007 forecast financial statements, and provide a forecast for the next five years. As an initial (base case) analysis, assume all borrowings are some form of debt. You may also assume the share repurchase occurs in 2008 and that interest expense is equal to 6% of outstanding debt. Assume sales growth of 25% for the first two years after 2007 and 5% thereafter. Note that you need not provide a detailed forecast of the current asset and current liability accounts.

2. Given the need for external sources of capital, please contrast the desirability of external equity, a long-term note payable, and a short-term revolving line of credit.