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Bond Refunding - Strayer Education Inc As Brigham and Ehrhardt discuss in Financial Management refunding bonds involves two decisions The first focuses on profitability is it profitable to call an outstanding issue in the current period and replace it with a new issue The second decision looks at timeliness of the refunding related to the firms value would the firms expected value be increased even more if the refunding was postponed to a later date Brigham E Ehrhardt M p 766 Throughout the paper there is a review of Strayer Educations capital structure and debt philosophy advantages and disadvantages of debt to a firms operation and a hypothetical bond refunding situation Recommendations based on the questions posed above are made Strayer Educations capital structure is a combination of preferred and common stock In 2002 their structure was 0 debt 61 preferred stock and 39 common stock They have no short or long term debt httpwwwstrayereducationcomEdgarDetailcfmCompany IDSTRACIK1013934FID950136-03-1894SID03-00 As Robert S Silberman CEO says in Strayers annual report our capital structure remains sound and we continue to generate more free cash flow than we usehttpwwwstrayereducationcomannualcfm p 6 Strayer has no outstanding bonds and if they did they would probably choose to pay off the debt but for the purpose of this paper refunding options will be reviewed Although Strayer has no short or long term debt there are several advantages of debt which include tax deductible interest payments financial obligations are specified and of a fixed nature in an inflationary economy debt might be paid back with cheaper dollars and the use of debt may lower the cost of capital to the firm Block S Hirt G p 470 Strayer may need to review these benefits and utilize debt when appropriate Certainly debt has several disadvantages as well For instance interest and principal payment obligations must be met as specified in the contract no matter what the financial position of the company
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