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Submitted by dezifer on August 9, 2007
Category: Business
Words: 3045 | Pages: 13
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Problem Solution: Lester Electronics
Lester Electronics (LEI) is a consumer and electronics parts master distributor that markets its products to original eqhttp://www.oppapers.com/media/images/btn_join.gifuipment manufacturers. Recently, the CEO of Shang-wa is wishing to retire and has no formal progression plans for the company’s management. Simultaneously, Shang-wa is being pursued for a takeover by Transnational Electronics Corporation (TEC). Lester Electronics and Shang-wa Electronics are both upset over the take over possibility. Lester is set to lose 43% of their revenues if they lose Shang-wa as a supplier. Both Lester and Shang-wa agree that a merger between the two companies would be the best solution to maintain their relations and hold off takeover attempts by the two other companies Lester believes that a merger between the two companies would be the best way to increase their shareholder’s wealth. (University of Phoenix, 2007).
Situation Analysis
Issue and Opportunity Identification
The first issue, Lester’s financial managers should evaluate their cash flows to see if they have the money to either buy Shang-wa using the equity that they already have or to finance the purchase with debt. During this evaluation, Lester should evaluate the timing of the cash flows. If Lester decides to purchase Shang-wa using any debt, the financial managers will have to ensure that the timing of the cash flow is such that Lester is able to make the principal and interest payments on the debt (Ross, 2005). If this evaluation is completed successfully, then Lester should be able to increase in financial standing within the industry.
Second, LEI is facing will be to determine a financial structure and a financing plan to complete the merger with Shang-wa. “Managers should choose the capital structure that they believe will have the highest firm value, because this capital structure will be the most beneficial to the firm’s...
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