Deluxe Corporation Financial Flexibility Case Study Solution

Similar Documents


...Corporations – Study Notes - A corporation is a legal entity that is separate and distinct from its owners - It has the rights and privileges of a person (exceptions: voting, hold public office, marry) - A corporation has the same duties and responsibilities as a person - It must respect the laws and pay income taxes - Corporations may be organized for the purpose of making a profit - Not-for-profit corporations are organized for cultural, social, charitable, medical, educational, and religious purposes - A publicly held corporation may have thousands of shareholders - Its shares are traded in an organized securities market such as the Toronto Stock Exchange - Most of the largest Canadian corporations are publicly held - A private corporation (closely held corporation) has only a few shareholders and does not offer its shares for sale to the general public - Crown corporation is similar to a privately held company except that it is owned by the government (Canada Post, GO Transit) Characteristics of a Corporation Separate Legal Existence - The corporation acrs under its own name rather than in the name of its shareholders - Corporation can buy, own and sell property. They can borrow money and enter into legally binding contracts in its own name. May sue or be sued and pays its own income tax. - The acts of the owners (shareholders) do not bind a corporation unless these owners are duly appointed agents of the corporation Limited Liability of......

Words: 293 - Pages: 2


...CORPORATION * A Corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. Attributes of a Corporation * A Corporation is an artificial being with a personality separate and apart from its individual shareholders or members. * It is created by operation of law. * It enjoys the right of succession. * It has the powers, attributes and properties expressly authorized by law or incident to its existence. Advantages of a Corporation * The corporation has the legal capacity to act as a legal entity * Shareholders have limited liability. * Its management is centralized in the board of directors * It has continuity of existence. * Greater ability to acquire funds. Disadvantages of a Corporation * A Corporation is relatively complicated in formation in management. * There is a greater degree of government control and supervision. * Its requires a relatively high cost of formation and operation * It is subject to heavier taxation than others forms of business organizations. * Transferability of shares permits the uniting of incompatible and conflicting elements in one venture Classes of Corporations * Stock Corporation Corporations which have share capital divided into shares and are authorized to distribute to the holders of such shares dividends or allotments of the......

Words: 451 - Pages: 2

The Corporation

...The Corporation: The Corporation is today's dominant institution, creating great wealth but also great harm. This 26 award-winning documentary examines the nature, evolution, impacts and future of the modern business corporation and the increasing role it plays in society and our everyday lives. The birth of the corporation: How the corporation came to be. Originally, corporations were set up to serve the public good. Corporation lawyers gained rights through the US Supreme Court using the 14th Amendment (set up to protect slaves) that gives them the rights of a person. In the last century, the corporation is given more and more rights while people are increasingly stripped of theirs. Origins of Corporations Although definitions and descriptions of corporations have changed dramatically through the last few hundred years, the first corporation actually began long ago – as early as the sixteenth century. It was a benchmark in the history of money and business, transforming an economy from what was essentially a debt economy (when it came to merchant work) to a state-sponsored enterprise. This type of business was brilliant and revolutionary for the early business world, allowing businesses to take risks and expand in ways they had been unable to do before. The concept spread and grew, and by the seventeenth century, the corporation was well on its way to being an acclaimed and established center for regular commerce. When corporate business came to the newly born......

Words: 2045 - Pages: 9

Deluxe Corporation

...opportunities. This will ultimately increase the corporate value of Deluxe Corporation. 2. How could Singh achieve financial flexibility? I think that Singh can achieve to financial flexibility by borrowing more money. As the calculations show in the case of downgrading their bond rating to an A, this will provide ample borrowing cap to the company, c. $556.9 million, which is 3.45 times bigger than the current total debt outstanding of $161.4 million. In this case the company should have the chance of keeping free funds in their borrowing accounts, hence should need be to grasp of an occurred opportunity, they can finance it from their debt. Therefore increasing the total debt of the corporation will enable the firm to become more financially flexible. 3. What are the reasons why the bond rating is important for Deluxe Corporation? The bond rating is important to Deluxe Corporation because: • Bond ratings first of all provide a corporate image/brand name to company, • They are an index in order for investors to distinguish between the valuable and junk bonds, hence providing them important information to buy them or not. • Bond rating index is a measure of the company’s ability of meeting its liabilities. 4. Considering the above questions and your answers, and what you learned from the case, what should Singh recommend regarding the target bond rating and mix of debt and equity for Deluxe and explain why? Based on the calculations the WACC is the......

Words: 433 - Pages: 2

The Corporation

...the corporation is very informative. There are several viewpoints throughout the documentary. In one part of the documentary certain corporations were call bad apples. Bad apples were the corporations that were flooding the corporation industry. Kmart in Enron were two of the corporations thar was considers bad apples. The documentary a corporation was said to be like a family. Asia K. Philson Everyone works together for a common in goal like a family would do. One important key factor is that certain corporations are exposing dangerous chemicals that harm us. Some believers feel we are in a major cancer epidemic due to harsh chemicals that one is exposed to on an everyday basis. The synthetic chemicals are not only causing cancers but birth defects and other toxic mishaps as well. Animals are born with defects and a child was born without eyes. The documentary explains that a corporation is psychotic If you're looking at the corporation as a person. The corporation is said to have all the characteristics of a psychopath. The people that are part of the corporation such as stockholders, workers, and Executives all have moral responsibility within a corporation. The CEO of Goodyear says that his job is very stressful and that he does not have complete control (Sam g) Since 1990 Goodyear has laid off over 20,000 employees and closed 8 plants. He explains that it's a decision that he never likes to make. Society views CEOs and other important people of corporations......

Words: 313 - Pages: 2

Deluxe Foods Ltd.

...EXECUTIVE SUMMARY Deluxe Foods Ltd. (subsidiary of a large US based consumer packaged-food company with annual global sales of more than $2.8 Million) is currently in a pivotal growth and expansion stage of their business cycle. The company has to decide on whether to create a separate marketing plan for one of their corresponding territories (Quebec) or focus on a global strategy for the entire firm. As Quebec and Ontario account for 69% of the total sales (in the amount of $450 Million) for this Canadian subsidiary, it is imperative to develop and customize a marketing campaign for this market. Currently, the Ontario division is functioning adequately (having a central distribution centre in Toronto helps), yet there is opportunity to grow market share in Quebec. This is due to the following factors: * 80% of the market is French speaking * Quebec’s per capita consumption is above the national average * Previous research projects suggest to separate and differentiate the brand from competition * Revise and customize the advertisement plan in the French language * Collaborate with the independent shops Creating an effective marketing plan includes: 1. Set Objectives- Grow the Quebec market share by 10% annually 2. Select Target Market- Sell products in independent mom and pop shops by conducting market research and analysis (SWOT), pricing strategy, promotional campaign 3. Develop Marketing Mix- Price...

Words: 3361 - Pages: 14


...Partnership or Corporation 1. What are some of the advantages and disadvantages of Thomas and Bryan forming a corporation? First of all, a corporation is a legal entity, created by the state, whos assets and liabilities are separate from its owners. It has some rights, duties, and powers of a person, as well as the rights to receive, own or transfer property. It is also important to mention that corporations are typically owned by many individuals and organizations who shares of the business, called stock. After this, I found some advantages or disadvantages for Thomas and Bryan if they want to form a corporation. Disadvantages: First of all, they will not be able to form a corporation in any State of the U.S. According to the law, there are some states in the U.S. that do not allow corporations owned by only two individuals. Information play an important role in any corporation, it takes a long time, as well as a lot of money to make annual reports with financial information of the office theys want to put, the flowers, and all that stuff, that is probably going to take a good part of the $10,000 of their initial contribution. Fees and formality will be some other disadvantages of turning the business into a corporation, considering that the Capital contributed was not a big amount. Finally, we cannot forget that corporations have potential double tax consequences (once when the company makes its profit, and a second time when dividends are paid to shareholders),...

Words: 834 - Pages: 4


...Thoai Nguyen, Vincent Cho Deluxe- Capital Structure Deluxe’s Background: Deluxe is a company found in 1915 and is a pioneer in the check printing business. In 2000, Deluxe it promotes new technology, eFund, to partially replace the declining checking printing market. Problems : The revenue of core business, check printing, is going down due to the decline of demand, and the increase of competition. So, the management believes that Deluxe needs good capital structure to achieve both tax advantage and low cost of capital. Analysis: Firstly, the revenue is declining at the average of 4% a year (Exh.1) because people start using online banking, ATM cards, and debit/credit cards for payment instead of using checks in the daily basis. With projected decline in sales, Deluxe may face a decline in Net Income, and Gross Profit Margin. Secondly, current market value of equity /debt ratio reflects a way more positive situation than the book value ratio. However, since it heavily depends on the market value of its share, Deluxe has to keep the market value of its share stable at certain level. Another risk factor is the firm may have a hard time paying its commercial paper of 150 million in the near future. The risk of default is not significant yet. However, the company will have to make a huge payment really soon. Besides, funding new projects with debt when the firm is at the matured phase of the product life cycle, where revenue starts declining doesn’t sound good. Clearly......

Words: 1336 - Pages: 6

Deluxe Corporation Teaching Note

...DELUXE Corporation Teaching Note Synopsis and Objectives Suggestions for complementary cases in capital structure choice and financial flexibility: “The Wm. Wrigley, Jr. Company: Capital Structure, Valuation, and Cost of Capital,” (case 30); “Rosario Acero S.A.,” (case 32); “Gainesboro Machine Tools Corporation,” (case 25) In July 2002, an investment banker advising Deluxe Corporation must prepare recommendations for the company’s board of directors regarding the firm’s financial policy. Some special considerations are the mix of debt and equity, maintenance of financial flexibility, and the preservation of an investment-grade bond rating. Complicating the assessment are low growth and technological obsolescence in the firm’s core business. The student must recommend an appropriate financial policy for the firm and, in support of that recommendation, must show the impact on the firm’s cost of capital, financial flexibility (i.e., unused debt capacity), bond rating, and other considerations. This case may be used to pursue a number of teaching objectives: • Survey the determinants of corporate bond ratings. The case highlights the important influence of the rating agencies on the costs of debt and the access to capital markets. The case data affords students the opportunity to explore profitability, coverage ratios, and capitalization ratios as measures of credit quality. • Explore the practical challenges involved in determining the......

Words: 4191 - Pages: 17


...The first thing I would like to do is describe what kind of organization that IM runs with Deluxe Tool. Looking at Deluxe Tool, it is easy to see that this company operates under a bureaucratic control. This organization is very formal. Clearly IM has rules and regulations that are expected of his employees. These formalities have allowed the organization to be successful and to grow. Mr. Tycoon practices the art of Gemba Walking, because as stated in the case details he is very involved in the day to day operations of the company. Now, with the responsibilities of Safe Buy Insurance and MicroAge Software, he must now look at those organizations and figure out a way to manage them under his style of leadership. We first review the Safe Buy Insurance Company. (Brasfield, 2013 p. 347) Safe Buy Insurance is the actual name of the company, however according to the details of the case none of the agencies up under Safe Buy carry the Safe Buy brand. It was mentioned that many of the agencies are not making the profit that they made in the previous years. It was mentioned that there are issues with the processing of paperwork. IM’s first point of business is to establish a mission statement, vision, and goal for this company. Right now, it is stated that this business is market controlled. There needs to be a standard through the agencies under Safe Buy. The company needs to know what they stand for, where they are at, and where they are going. Providing a standard,......

Words: 962 - Pages: 4

C Corporations and S Corporations This system applies to the business S-corporation-called the "C-corporation" (C-corp) for reasons we'll see shortly-and the system of taxing first the corporation and then its owners is called the "corporate double tax." "Pass through" taxation. The entity (called a "flow-through" entity) is not taxed but its owners are each taxed (more or less) on their proportionate shares of the entity's income. The leading forms of pass through entity (further explained below) are: Partnerships, of various types. "S-corporations" (S-corps), as distinguished from C-corps. Limited liability companies (LLCs). A sole proprietorship such as John Doe Plumbing or Marcus Welby, M.D. is also considered a pass through entity even though no "organization" may be involved. The first major consideration (in this case, a tax consideration) in choosing the form of doing business is whether to choose an entity (such as a C-corp) that has two levels of tax on income or a pass through entity that has only one level (directly on the owners). Losses are directly deductible by pass through owners while C-corp losses are deducted only against profits (past or future) and don't pass through to owners. The major business consideration (as opposed to tax consideration) in choosing the form of business is limitation of liability, that is, to protect your assets from the claims of business creditors. State law grants limitation of liability to corporations (C and S-corps), LLCs, and partners in certain......

Words: 3563 - Pages: 15


...Introduction A corporation is a legal entity that is created under the laws of a state designed to establish the entity as a separate legal entity having its own privileges and liabilities distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter (i.e. by an ad hoc act passed by a parliament or legislature). Most jurisdictions now allow the creation of new corporations through registration. An important (but not universal) contemporary feature of a corporation is limited liability. If a corporation fails, shareholders normally only stand to lose their investment and employees will lose their jobs, but neither will be further liable for debts that remain owing to the corporation's creditors. Sole- Proprietorship A business structure in which an individual and his/her company is considered a single entity for tax and liability purposes. A sole proprietorship is a company which is not registered with the state as a limited liability company or corporation. The owner does not pay income tax separately for the company, but he/she reports business income or losses on his/her individual income tax return. The owner is inseparable from the sole proprietorship, so he/she is liable for any business debts also called proprietorship. A business can be set up in a variety of ways, ranging from a sole-proprietorship to a general partnership, an LLC to a......

Words: 1593 - Pages: 7


...7 pt. | Total revenue | 100.0% | 100.0% | 100.0% | | | * 部門營收分析 SEGMENT RESULTS | | | | Change | Total revenue | 2014 | 2013 | 2012 | 2014 vs. 2013 | 2013 vs. 2012 | Small Business Services (1.) | $1,129,250 | $1,050,250 | $ 961,631 | 7.5% | 9.2% | Financial Services (2.) | 368,384 | 343,160 | 341,135 | 7.4% | 0.6% | Direct Checks (3.) | 176,448 | 191,414 | 212,151 | (7.8%) | (9.8%) | | | | | | | Total revenue | $ 1,674,082 | $ 1,584,824 | $ 1,514,917 | | | 1. The increase in total revenue for 2014, as compared to 2013, was due to primarily to growth in marketing solutions and other services revenue of $51 million including incremental revenue of $18 million from the acquisition of Gift Box Corporation of America in May 2014 and VerticalResponse, Inc. in June 2013, growth in our distributor channel of approximately $24 million and price increases These increases in revenue were partially offset by a decrease in volume for certain core business products sold through our direct sales channel, including checks and deposit tickets, and an unfavorable currency exchange rate impact of $4 million. * 產業成本分析 * 產業毛利率走勢 * 產業費用分析 * 獲利分析-ROE走勢 * * 安全性分析 * * 成長力分析 * 價值評估...

Words: 729 - Pages: 3

The Corporation

...qualities, analysis of growth and history, exploration of impacts, and brief look at the future of the modern business corporation. The documentary defines a corporation as a legal person, explaining that is has most of the legal rights a person has such as borrowing money and managing property. The film was released around the time of major corporate scandals, such as Xerox, Enron, and WorldCom, and uses the metaphor “bad apples” to state that there are more than a few corporations that are bad. The film argues that if corporations were people, they would have psychopathic personalities. It then states that corporations have become a vessel which good and bad people can cause harm to society because of the way corporations have evolved and how they are protected. The Corporation film is concerned with the role corporations have in modern society its impact, or the corporate social responsibility. The film explores how corporations have been poisoning the earth as well as consumer minds and how the government is intended to look over and control these corporations. It looks into some of the unethical business practices and strategies executed by corporations and the externalities that are created to satisfy the main goal of the corporation: to maximize profit and market share. 2. Body A major social issue that was brought up in this film is the way that corporations treat foreign factory workers. The film is concerned with the rampant use of sweatshops by large......

Words: 913 - Pages: 4

Mcdonalds Arch Deluxe

...Individual Innovation Paper McDonald’s Arch Deluxe EXECUTIVE SUMMARY Individual Innovation Paper: McDonald’s Arch Deluxe Analysis - Why It Failed INTRODUCTION McDonald’s has been in the hamburger business since the 1950’s and grown into a world-wide fast-food giant known for “Quality, Service, Cleanliness and Value”. As the McDonald’s empire grew so did their menu, it adapted to the tastes of their customers. In 1996 McDonald’s launched the Arch Deluxe; their answer to what adults want to eat. The public did not agree with McDonalds and the product was not successful. CAUSE OF PRODUCT FAILURE McDonalds advertising tried to show that the new Arch Deluxe was fancier than their other menu items and overemphasized the how adult it was. In the end the public did not agree and it ultimately failed. The Arch Deluxe did not make a rebound although over time they did add menu items with similar ingredients on the menu today. WHY DID IT NOT REBOUND? I believe the reason McDonald’s would not bring the Arch Deluxe back is because it is such a well-known financial failure for such a successful multi-national business. CONCLUSION The creation of the Arch Deluxe was not a big mistake in of itself, they wanted to create something adults would like to order and during research and design the testing groups liked the Arch Deluxe. The problem was with the way McDonald’s advertised and promoted the Arch Deluxe; they thought their idea was innovative and the advertising did......

Words: 1537 - Pages: 7

Question No. 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?


The normal concept behind the ratings of debt is that the higher the rating of debt lowers the cost, but the reason of giving ratings is that it shows only the risk of default and loss occurred from the default by the company and does not guarantee the lowest cost of capital. In order to evaluate the lowest cost of capital, one must analyze the WACC of the company and for this the company should select the category, providing low WACC but the category must be at-least BBB, the lower the WACC higher the enterprise value.

WACC can be defined as the lowest rate of return that a company must earn in order to stay in the break-even position. If the return of the company is below WACC, then the company will be in deficit. In that way, the organization wants higher return than its WACC. WACC do considers all the sources of funding.

But on the other hand, only WACC alone cannot give the optimal value for the shareholders, it only offers the minimum cost. Generally, the relationship between the market value and WACC is inversely proportional, as the market value of the firm increases, the WACC declines up to the certain level and then starts to rise. Also refer to appendix.

Question No. 5: Is Deluxe’s current debt level appropriate? Why or why not?


It can be judged that the current debt level of Deluxe Corporation was not appropriate. Currently the company has debts of around $161.50 million. As shown in the appendix,the calculations of maximum debts shows that the company will be needing an external sources of funds which will be increasing over the period of time. The target should be to have a debt with minimal cost to lower the cost of capital. Considering the market value of equity, minimum WACC is obtained at the BBB category of the debt. Also refer to appendix.

Question No. 6: What should Singh recommend regarding:

1.      The target bond rating
2.      The level of flexibility or reserves
3.      The mix of debt and equity

Any other issues you believe should be brought to the attention of the CEO and the board.


After the careful analysis and computations, it has been suggested that the company should need to bring its position in obtaining AAA rated bonds, but in that category, the company will have higher unused debt capacity because of the high ratings. In that sense, the company will itself be in an acquisition target by other growing companies.

To counter this position, the company is planning to use the mixture of debt and equity, have decided to go for the aggressive share buyback plan. As per the solution, the company is better off taking debts, but of course, up to a certain level. Cost of debt arein between 5.47% to 12%, and without any tax shield. On the other hand, the cost of equity is rather more expensive, it ranges from 10.25% to 14.25%. After tax cost of debt arein between 3.39% to 7.44%.

Through all this analysis, it seems that Deluxe is able to reach its objectives in particular, financial flexibility, bond rating and value creation. Therefore, we recommend that, the company to recapitalize its equity by increasing, capital through the release of new shares, or try to increase the face value of the shares. So that, Deluxe Corporation can improve its capital structure and keep away from the risk of the falling in its current ratings..............................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Other Similar Case Solutions like

Deluxe Corporation


Leave a Reply

Your email address will not be published. Required fields are marked *