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Running head: PROBLEM SOLUTION: LESTER ELECTRONICS
Problem Solution: Lester Electronics
Problem Solution: Lester Electronics
Lester Electronics Inc. (LEI) has made a decision. The Board of Directors has granted, approval to move forward with the acquisition Shang-wa. Both companies have much at stake; therefore, Bernard Lester is fully aware of the importance of making the best possible financial decisions. LEI must apply financial vehicles to determine the perfect financial mix for success. This paper will propose solutions to LEI’s financial issues regarding the acquisition. The purpose of the paper is to determine the optimal financial solution that maximizes current and future wealth of company.
Situation Analysis
Issue and Opportunity Identification
The potential threat of losing almost 50% of their sales has forced Lester into making a decision that will protect their revenue for years to come. Shang-wa’s acquisition will require strong financial leverage on Lester’s part and that begins with the organization’s understanding of the optimum debt position to be in, for the lowest interest rates possible, when financing is sought after. Shang-wa’s 2004 long-term debt ratio of .69 presents an issue in obtaining lower interest financing and this is not a position Lester is used to being in when considering that they carried a .01 long-term debt ratio in 2004. Lester does have the opportunity to absorb Shang-wa’s poor long-term debt position due to the strength of Lester’s own long-term debt ratio.
An issue Lester must keep at the forefront of the company’s thoughts heading into this acquisition is the potential for expensive financial distress costs due to the Shang ...