a. Start with where Deluxe is currently at and estimate the WACC of Deluxe as of August 1, 2002. If you can?t find certain amounts as of August 1, 2002, you may need to use December 31, 2001 info for some components. For the stock price as of 8/1/02 use Yahoo!Finance?s historical prices feature. Also assume that Deluxe would issue bonds at an interest rate equal to market rates (based on its bond rating) at August 1, 2002. b. Continue by estimating Deluxe?s intrinsic equity value as of August 1, 2002 using a discounted cash flow analysis and using your WACC from point a. Note that free cash flow estimates may be found at Exhibit 4, so you do not need to compute yearly sales, costs, depreciation, working capital, capital expenditures, etc. (i.e., this is supposed to be easier for you, as you can simply start with free cash flows). Don?t use the 10-year t-bond as the long term growth rate; rather, select what you think is reasonable based on what you know of Deluxe and their forecasts. Hint: August 1 is the valuation date?think about how that affects your cash flows and discounting. How does intrinsic value per share compare with the market value per share as of August 1, 2002? Even without a major refinancing/change in capital structure, would a share repurchase seem like an attractive option? c. Compute Deluxe?s unused debt capacity under each credit rating category considering both a Leverage Ratio and an Interest Coverage ratio. We already computed the maximum debt under the interest coverage ratio, so you will need to also compute it under the Leverage ratio and then assume that allowable debt may not exceed the smaller of the two maximum debt computations. The leverage ratios should not exceed the following: i. AAA ? 1.00 ii. AA ? 1.5 iii. A ? 2.10 iv. BBB ? 2.5 v. BB ? 5.0 vi. B ? 6.0 d. Compute Deluxe?s WACC at each bond rating, assuming for simplicity (for this point only) that it takes out a loan equal to the total amount of unused debt capacity you computed above. Think about which WACC components will change depending on the level of borrowing and the bond rating. Indicate which bond rating Deluxe should strive for in order to minimize its WACC. e. Finally, make a recommendation as to what dollar amount of debt you recommend that Deluxe borrow in order to repurchase shares. Compute the total increase in shareholder value due to the repurchase by comparing intrinsic value in part b above to what intrinsic value would be after the repurchase.