Q.No.

6) What should Singh recommend regarding: the target bond rating the level of flexibility or reserves the mix of debt and equity

Solution: Target bond rating After the calculation and analysis of different types of bond rating, it is found that BBB is the most appropriate one because WACC is comparatively lower in comparison to other types of bond ratings. The lower the value of WACC, the better will be the bond ratings and the most important thing is that BBB lies on the investment grade. If Maximum level of debt is taken under BBB, then WACC will be 8.43% and if minimum level of debt is taken under BBB then the value of WACC will be 8.99%. The level of flexibility or reserves Flexibility enables Deluxe Corporation to achieve a better 'fit' with their environment and create a sustainable competitive advantage. In this case level of flexibility in case of debt for Deluxe Corporation under BBB rating is from $814millions to $1254.38millions. For maximum level of debt it is $1254.38millions and for minimum level of debt it is 814millions. So, the reserve for Deluxe Corporation is ($1254.38- $814) millions. The mix of debt and equity Under BBB ratings, the mix of debt to equity for maximum level of debt is 0.33:0.67. The mix of debt to equity is 0.24: 0.76 for minimum level of debt.