Caraustar Industries Inc. (fka CSARQ)

[~ TRT ~]

Cost effective strategy, I like that.

$820 million paperboard producer trading at 20 cents ...

http://www.cfo.com/article.cfm/13522582/c_13526469

At Caraustar Industries Inc., an $820 million paperboard producer, senior vice president and CFO Ron Domanico has addressed the cost-of-capital conundrum by abandoning, at least for now, the idea that any one number can cover every situation.

"In the past, we had one cost of capital that we applied to all our investment decisions," Domanico reports. "Today that's not the case. We have a short-term cost of capital we apply to short-term opportunities, and a longer-term cost of capital we apply to longer-term opportunities. And the reality is that the longer-term cost is so high that it has forced us to focus only on those projects that have immediate returns."

Domanico embraced this dual approach largely to account for the vast spread that has erupted between rates on short-term and long-term debt. Caraustar can borrow against its bank credit revolver at the lower of prime plus 4% or LIBOR plus 5% — a reasonable bogey for deciding, say, whether or not to take a 2% discount on a vendor invoice by paying early. But that's hardly a good benchmark for a $3 million equipment purchase. Hence, Domanico says, his separate, long-term cost-of-capital calculation takes into account the 12%-plus rates Caraustar would face today if it were to borrow long term.