Deluxe Corp

1. What are the risks associated with Deluxe’s business and strategy? What financing requirements do you foresee for the firm in the coming years?

2. What are the main objectives of the financial policy that Rajat Singh must recommend to Deluxe Corporation’s board of directors?

3. Drawing on the financial ratios in case Exhibit 6, how much debt could Deluxe borrow at each rating level? What capitalization ratios would result from the borrowings implied by each rating category?

4. Using Hudson Bancorp’s estimates of the costs of debt and equity in case Exhibit 8, which rating category has the lowest overall cost of funds? Do you agree with Hudson Bancorp’s view that equity investors are indifferent to the increases in financial risk across the investment-grade debt categories?

5. Is Deluxe’s current debt level appropriate? Why or why not?

6. What should Singh recommend regarding:

* the target bond rating

* the level of flexibility or reserves

* the mix of debt and equity

* any other issues you believe should be brought to the attention of the CEO and the board

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...