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Lester Electronics Financing Alternative Benchmarking

Lester Electronics Financing Alternative Benchmarking
Corporate growth usually occurs internally when a firm grows its existing departments through normal capital budgeting activities. However, the most dramatic examples of growth sometimes results from mergers. Many reasons have been offered by financial managers to account for frequent merger activity. The primary motivation behind a merger is that it provides an opportunity to bring together and increase the value of the combined enterprise.
One commonly used research tool available to organizations who are considering a merger is benchmarking. Benchmarking is the process of identifying, understanding, and adapting best practices from other industries and organizations. Benchmarking is an activity that gives businesses the ability to look outward to find the best practice that fits the organization, much like LEI must do as it decides on the best solution for merging with Shang-wa. This paper will review the concepts of the weighted average cost of capital (WACC), operating leverage, Beta, financial mix, dividend policy, and financial risks as they apply to Apple Computers, Ford Motor Company, Oracle Corporation, AT&T, Delphi, General Motors, Home Depot, and Proctor & Gamble.
Overall Analysis
Weighted Average Cost of Capital
Whenever a company is looking to make a financial decision that will significantly affect the financial state of the company, whether in a positive or negative way, the company must evaluate and weigh the costs that will be affecting the project. One of the ways that someone can place a value on a project is to use the weighted-average-cost-of-capital method. ¡§This approach begins with the insight that projects of levered firms are simultaneously financed with both debt and equity,¡¨ (Ross, et al., 2005, p. 13). This presents one of the various ways that Lester Electronics can finance its upcoming project of merging with supplier Shang-Wa. The weighted average cost of capital method...