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Issues Connected to Corporate Finance
The first concern that Lester should consider is checking whether or not they have enough financial capacity to carry out the merger with Shang-wa. The financial managers of Lester need to evaluate the company's cash flows to know if they have enough money to either buy Shang-wa with existing equity or to finance the purchase using debt. Through this evaluation process, Lester also needs to assess the timing of cash flows. If Lester decides to buy Shang-wa using any debt, the financial managers will have to make certain that the timing of the cash flows is such that Lester would be capable of making the principal and interest payments on the debt (Ross, Westerfield, & Jaffe, 2005). With the successful completion of this evaluation Lester should be able to increase its financial standing within the industry.
The second issue faced by Lester Electronics is establishing a financial structure and financing plan to complete its merger with Shang-wa. According to Ross, Westerfield, and Jaffe, "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 stockholders" (2005, p. 404). If Lester can choose and implement a financial structure that will benefit their stockholders and add value to the firm, then they will have the opportunity to grow as a company, take on new endeavors, and continue their business relationship with Shang-wa.
A third issue confronting Lester Electronics is the reduction of risk to its stockholders. A merge with another company entails a substantial amount risks; frequently, investors avert such risks. The mitigation of risks as ...