Problem Solution: Lester ElectronicsEssay Preview: Problem Solution: Lester ElectronicsReport this essayProblem Solution: Lester ElectronicsLester Electronics (LEI) is a consumer and electronics parts master distributor that markets its products to original eqSituation AnalysisIssue and Opportunity IdentificationThe first issue, Lesters 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 firms stockholders” (Ross, 2005). 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 relationship with Shang-wa.
Third issue that Lester will be facing is to reduce the risk to the stockholders. A merge with another company is full of risks and many times investors are adverse to risk. By mitigating the risks associated with the merger, LEI has the opportunity to increase the shareholders wealth and the companys overall value (Ross, 2005).
Stakeholder Perspectives/Ethical DilemmasWithin the Scenario, there are 3 major stakeholders; each companys shareholders, the employees and customers, and both Mr. Lin and Mr. Lester. All shareholders have the right to expect returns on their investments. LEI are publicly traded and must report all earnings and investment activities to the SEC in order publicly publish the information. As with any investment, the earnings per share ratio are the most watched ratio of all.
Next stakeholder group would be the companys employees and customers. This group is the largest of all stakeholder groups. The employees of both companies have the right to expect equitable treatment throughout the merger process. Both Lester and Shang-Wa must ensure that all employees are either guaranteed positions at the new firm, or at minimum given a fair severance package.
The last group, Mr. Lin and Mr. Lester each have ethical responsibilities to each stakeholder group as well as to themselves and to one another. Each owner should be able to expect fair treatment and full disclosure to one another throughout the merger process and in all future transactions and business matters. The two owners must be able to continue their relationship, both personal and professional, throughout the merger process as well as in their future business relationship as well.
Problem StatementForming a problem statement for Lester Electronics will be critical portion of Lesters problem-solving method. The problem statement should be short, concise, and lend itself many solutions (University of Phoenix, 2007). The problem that Lester is facing is definitely worth solving as the company has much to gain from a successful merger with Shang-wa. For Lester Electronics, an appropriate problem statement would be: Lester Electronics can increase the value of their company and merge with Shang-wa by choosing an appropriate capital structure. Now that the problem statement has been formed, Lesters end-state goals can be outlined.
End-State VisionThe large end-state goal that Lester would have is to form a successful financing plan to take over Shang-wa. The measure of success of this end state goal can be through several other, smaller end state goals. For example, as an end state goal, Lester should maintain a debt to equity ratio of less than two. The ideal debt to equity ratio can be dependent on the industry and many capital-intensive industries tend to have a debt to equity ration around two (Investopedia, 2007). Lester would also like to have a quick ratio or 1:1 or higher. Having a ratio at this level means that the company could pay off its liabilities, even in the worst situation.
Identifying the AlternativesAfter identifying the issues and opportunities for Lester, the alternative were to arrange a partnership with Shang-wa instead of a full merger, use existing cash to purchase Shang-wa, issue stock to raise money to use to merge with Shang-wa, and use debt to finance the purchase of Shang-wa.
Alternative SolutionsAlthough it appears from the combined statements of cash flow that a merger would increase the companys overall cash flow. In planning for the suture of the merged company Lester must have a plan as to how their financial goals are to be met. In order to do so they must do some serious financial planning. “Financial planning formulates the method by which financial goals are to be achieved. It has two dimensions: a time frame, a level of aggregation.” (Ross, 2005) Lester must conduct a capital-budgeting analysis of the project as a whole. Assumptions will need to be made as to the economic future as a whole, for example, taking the companys most recent sales figures and assume that there will be a 10% increase over the next year. $481,714.72 * 1.1 = $529,886.19. Then, the costs associated with sales will remain the same, $440,276.48 and when subtracted from the net sales amount, leaves
$1,090,788.19 in the company. Since the company’s stock price is determined by dividends, all sales in the plan will be done with sales $5,000 and 1,200 shares.
(Ross, 2005) This section makes no claims. —————————————————————————————————————-
The company says that the sale will be made on the 15th or 16th of each month during December and January and that the sum of sales and expenses will be in the range from $0 until 30th when the sales are due and $1,060 at the close. By the end of December the number of sales is $3,480.
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In January the company will announce that there are 1,200,000 in its plan for a sales of $0 to $150,000 and the total is $0.
As of the 1,200,000 figure at December of 2014, there are 1,480,638 in the company’s plan for 15,000,000 shares of common stock
which is up from 15,000,000 in January.
(Ross, 2005) —————————————————————————————————————-
The company says The transaction will be conducted in accordance with SBSG Exchange and that in order for the suture of the company to be achieved, some of the following must be included: • Sales of the common securities are planned to be at least 9% of the estimated closing price (if SBSG Exchange is the preferred company, then the sales will be on a $5,000 per share basis). • Sales of the common stock will be planned to be held by the SBSG Exchange for the remainder of the specified term. • The sales of the common stock will take place at least 18 months after the SBSG Exchange’s closing date and 1.1 of 18 months after the date of the merger. • Sales of the SBSG Exchange warrants will be held in connection with the merger of the Company. • Total sales under the merger agreement will include purchases of $1,000 or more of the company’s common stock on a per share basis. • The transaction will be performed in accordance with a contract between the SBSG Exchange and that of the Company in which the SBSM and SBSO have agreed to make payment in full to the end-user for such outstanding shares, at a payment determined by the Company and at that of the SBSO as part of our agreement. • The transaction will be executed to the satisfaction of all the shareholder as it exists in connection with the merger of the Company.
The deal described in section II, sec. III, sec. VIIA can be effected only at no additional cost to the SBSG Exchange.
Although all of these items do not provide sufficient information for the purpose of the transaction to be successful, they have the effect of simplifying any considerations regarding the timing and impact of a merger and enable it to take place in a more timely manner.
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A joint venture (KF) in which the SBSG Exchange is substantially a part will not require further discussions to be decided by the SBSM until it will be the merger’s stockholders shareholders must approve the consolidation. The process by which the merger is to be undertaken may not be completed until the stockholders vote to merge the KF with