PRO DEBT
Dr. Theodore Burgmeister, marketing professor. Believes the firm is underlevered.
Points out that the current and quick ratios are above industry norms, as are the coverage ratios: the times interest earned and fixed charge coverage. In his judgment the debt and D/E (long-term debt divided by equity) ratios are “well below” average.(See Exhibit 3.)
John shreiner, treasurer. Agrees with Burgmeister that Meredith is underlevered. Also believes that the firm’s stock is “unappreciated” by investors. Feels that the sales estimates in Exhibit 4 are too low. Wants EPS up and free debt will do this. Wonders if this isn’t an appropriate time to evaluate the firm’s dividend policy.
Tyler Cogburn, chief financial officer. Favors debt for three reasons. First, in his view, inflation will escalate so any money borrowed now can be repaid with “cheaper” dollars. Second, the covenants on the bonds aren’t very restrictive. Third-and this he givers the most emphasis-he feels that Meredith’s profits will soar and it would be “unfair” to existing stockholders to sell new stock at this time. Like Shreiner, believes the sales estimates of Exhibit 4 are low. Admits though, that the projects do involve risk.