What should Singh recommend regarding: * Target bond rating * Level of flexibility * Mix of debt and equity * Other Issue As for what should Rajat Singh recommend regarding target bond rating, level of flexibility or reserves, mix of debt and equity and lastly any other issues. So, firstly look into the target bond rating, in our opinion DC needs to position itself to obtain a AAA rating. At AAA grade bond rating shows that AAA bond rating is higher in unused debt capacity so at AAA bonds rating Deluxe company has a lower unused debt capacity.
So, that means if the shareholders start to sell, this company may not rebound since it is in a dying industry.
The company will be an acquisition target by growing electronic payment companies because of the drops out of the premium ratings. For your information, for the level of flexibility is the amount of debt DC can take on before you lose the investment-grade bond rating. Based on the financial analysis, the B level is where the cost jumps the most.
There is a 26% increase in costs from a level BBB rating to a level BB.
As for mix of debt and equity, DC is targeting an aggressive share buyback plan. They are increasing their equity in the company by reducing shares. But because of the future of the company, they will also need to take on debt. Based on the financial analysis, they are better off taking on debt. Debt is cheaper for DC. Cost of debt ranges between 5. 47% to 12%, and that does not even include the 38% tax shield.
Cost of equity is more expensive, it ranges from 10. 25% to 14. 25%, and there is no tax shield. Cost of debt after the tax change ranges between 3. 39% to 7. 44%.
Lastly, for other issue knows today is 12 years after the case, and DC is still in business. CONCLUSION As we know, prior to the 1990s, the Deluxe Corporation (DC), the world’s largest printer of checks as well as a provider of electronic products and services to financial institutions and retail companies, was characterized as a generally stable, family oriented business. This relatively calm situation was unsettled in the 1980s by deregulation of the banking industry and changes in technology. Deluxe is forced to adopt a business model and implement strategic objectives to stay alive.
Therefore, based on the all the calculation and explanations, we have finally fulfilled all the statement of problems. As for the foreseen financial requirement for the coming years, which back then was the year after 2001, it shows that DC needs additional financing for working capital, capital asset purchases, possible corporate acquisitions, repayment of short-term debt, interest payments on long-term debt, dividend payments to shareholders and possible stock buybacks depending on the state of the stock they own.
Moving on as for the financial flexibility of Deluxe Corporation, it can be concluded that the debt level of DC seems to be not appropriate which is only 5. 71% from the total capital. As what it stated in Ehibit 8, DC could borrow more debt since it cost of debt (Kd) is lower than its cost of equity (Ke). Besides, the minimum WACC is obtained at bond rating AAA (9. 86%) and the same goes the optimum debt level for Deluxe would borrow which is USD 807. 50M again at bond rating AAA.
From there, by maintaining bond rating AAA, it can be seen that the minimum interest or total cost that DC need to bear is only USD 83. 81M. In a nutshell, again, it shows that DC can generate its fund in its lowest cost if it maintains AAA bond rating because through that type of bond rating, DC can generate funds by paying minimum cost of capital, quickly reach the breakeven point and can easily gain profit after that. However, this company has to diversify its business in order to stay around in this business world.
Remember! This is just a sample.
You can get a custom paper by one of our expert writers.
Get your custom essay
Helping students since 2015
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download