Sheet1AAAAAABBBBBBPretax cost of debt (Exhibit
9)5.51%5.52%5.70%6.33%9.01%11.97%Required EBIT interest coverage
(Exhibit 6)23.413.36.33.92.21Estimate of Maximum Debt
CapacityNormalized 5-Year EBIT (Exhibit
4)359.42359.42359.42359.42359.42359.42Maximum interest implied by
rating15275792163359Maximum total debt implied by
rating2794901001145618133003Downside EBIT200200200200200200Maximum
interest implied by rating915325191200Maximum total debt implied by
rating15527255781010091671Estimate of unused Debt CapacityBook
value of Deluxe's existing debt161161161161161161Maximum debt
implied by rating2794901001145618133003unused debt capacity at
current rating117.76328.57839.891294.911652.242841.67unused
capacity until investment grate rating is lost
(atBB)1534.481323.67812.35357.330.00-1189.44Estimate of Capital
StructureDeluxe corporation market value of
Equity266526652665266526652665Maximum debt implied by
rating2794901001145618133003Total debt/equity implied by
rating10.46%18.37%37.56%54.63%68.04%112.67%
Sheet2AAAAAABBBBBBcost fo debt
(pretax)5.47%5.50%5.70%6.30%9%12%cost of
equity10.25%10.35%10.50%10.60%12%14.25%Approach based on Hudson
Bancorp Estimates of Equity costsTax rate @38%After-tax cost of
debt3.39%3.41%3.53%3.91%5.58%7.44%cost of
equity10.25%10.35%10.50%10.60%12.00%14.25%Debt/capital (Exhibit
6)5%35.90%42.60%47%57.70%75.10%Weight of debt (implied by coverage
ratio)9.50%15.50%27.30%35.30%40.50%53.00%Weight of
Equity90.5%84.5%72.7%64.7%59.5%47.0%WACC (using market
weights)9.60%9.27%8.60%8.24%9.40%10.64%
0.8480074212Alternative approach based on CAPM and Levered
Betacost of debt (pretax)5.47%5.50%5.70%6.30%9.00%12.00%Unlevered
beta0.820.820.820.820.820.82Debt/equity
(Market)10.46%18.37%37.56%54.63%68.04%112.67%Levered
beta0.870.911.011.101.171.39cost of equity (rf=0.0530,
MP=0.054)10.02%10.23%10.76%11.23%11.60%12.82%After-tax cost of
debt3.39%3.41%3.53%3.91%5.58%7.44%Cost of
equity10.02%10.23%10.76%11.23%11.60%12.82%Debt/capital book value
Exhibit 65.0%35.9%42.6%47.0%57.7%75.1%Weight of debt (implied by
coverage ratio)9.50%15.50%27.30%35.30%40.50%53.0%Weight of
equity90.5%84.5%72.7%64.7%59.5%47.0%WACC (using market
weights)9.39%9.17%8.79%8.64%9.16%9.97%
Sheet3Cost of
EquityRatingHudsonCAPMAAA10.25%10.02%AA10.35%10.23%A10.50%10.76%BBB10.60%11.23%BB12%11.60%B14.25%12.82%
