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Overview Case considerations Key topics 9/12/2019 Deluxe Corporation Overview Case considerations Key topics 9/12/2019 Senior Seminar in Finance Senior Seminar in Finance

Senior Seminar in Finance 9/12/2019 Overview Summer, 2002 Consultant Rajat Singh has been retained to make recommendations to the Deluxe Board on financing policy (appropriate mix of debt and equity). Spreadsheet available: Deluxe.xls 9/12/2019 Senior Seminar in Finance Senior Seminar in Finance

Senior Seminar in Finance Case considerations What risks does the company face? What financing requirements does the company have? How much debt can Deluxe borrow at each rating level? How much debt should Deluxe have? How will debt be used? 9/12/2019 Senior Seminar in Finance

Senior Seminar in Finance Case considerations What role does cost of capital play in the decision? What is cost of capital at varying ratings/levels of debt? What should Singh recommend regarding: Bond rating for firm Level of “reserves” Mix of debt and equity Use of debt and further share repurchasing 9/12/2019 Senior Seminar in Finance

Senior Seminar in Finance Case considerations Quantitative techniques WACC analysis Finding WACC minimum Remember Hamada’s equations Re-levering beta as debt level climbs DCF valuation—compare intrinsic value to market value to assess share repurchase 9/12/2019 Senior Seminar in Finance

Senior Seminar in Finance Key topics Capital structure policy Cost of capital Stock repurchasing Juggling cash flows among several conflicting demands. 9/12/2019 Senior Seminar in Finance