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Lester Electronics understands the circumstances that are currently facing the organization. With various future options to consider Lester Electronics must carefully consider all the alternatives prior to making a final decision. The organization’s ultimate goal is to provide customers with superior products in such a way that will produce superior revenues for the organization. At this point Lester Electronics needs to consider all the financial aspects in each of the proposals.
Lester Electronics is preparing to merge with Shang-wa Electronics. Many financial decisions that will need to take place before that vision can be achieved. Lester must look at its current situation, determine the company’s future, and bridge the gaps that exist between the two. The consolidation of the business will result in a long-term debt-equity ratio of about 45%. The gap from the 45% debt-equity ratio to the goal of 20% is a result of combining the two firms. While Lester's debt had been significantly decreasing over the last three years Shang-wa's debt has been increasing. Both firms had been experiencing small percentages of growth in equity. Lester will need to consider ways to reduce its long-term debt to balance out the ratio.
One option available is to focus on other long-term financial instruments such as issuing of common stock shares or preferred stock. Common stock shares are the fundamental ownership units of the company. The board of directors may choose to share wealth by paying out dividends to the stockholders. "Dividends paid to shareholders represent a return on the capital directly or indirectly contributed to the corporation by the shareholders" (Ross, 2005). "Preferred stock represents equity of a ...