Lester ElectronicsEssay Preview: Lester ElectronicsReport this essayProblem Solution: Lester ElectronicsEric KorteUniversity of PhoenixMaximizing Shareholder Wealth 540/MBAPamela Scales, InstructorAugust 6, 2007Problem Solution: Lester ElectronicsLester Electronics, Inc., is a distribution company in the United States and has business relationships with Shang-wa Electronics, a Korean manufacturer. Shang-wa has a contract with Lester to sell capacitors in the United States if Lester maintained a minimum annual purchase of $1 million per year resulting is Shang-wa being Lesters primary supplier. In exchange, Shang-wa cannot sell its capacitors to anyone intending to market in America. Lester added additional components to its product line. Shang-was capacitors are well known in the U.S. market that is why Transnational Electronics Corporation, a large manufacturer and distributor of electronics components wants to acquire Shang-wa. On the other hand, Avral Electronics equipment and component parts manufacturer headquartered in Paris wants to acquire Lester, because they want to market their product in the U.S. market.
Financial PlanningFinancial planning consists of forecasting, budgeting and controls. Forecasting consists of short term and long term forecasting to ensure that the organization is prepared for the next week and the next decade. Short term planning needs to take into account the organization industrys outlook, customer base and what spending patterns will occur in the future, and other influences on expenses and income. Long term forecasting is usually more difficult to anticipate and can end up sounding vague, but through constant adjusting the organization should be able to stay on top of the changes as they occur.
A budget: A budget is actually made up of 3 budgets. The capital budget should outline expected spending for assets (both fixed and capital) necessary to run the business. The cash flow budget should be based on your forecasted cash flow to anticipate income and spend it appropriately as it comes in. Operating budget should anticipate expenses and income. A cash flow budget and an operating budget differ in that a cash flow budget anticipates the ebb and flow of money during a period of time while an operating budget looks at the expenses due on a regular basis.
Financial controls: Controls are necessary to make sure that spending doesnt get out of hand and to minimize the potential for error and employee theft. Some basic controls include requiring 2 signatures on every check or limiting the number of people who have access to the cashbox or counting the money in the cash register multiple times per day.
Although the idea of financial planning for business sounds daunting, these three things on their own dont sound that bad, do they? One of the reasons these are avoided is because of the misconception that financial planning is all about number crunching. Its not. Its simply creative forecasting (which I know many entrepreneurs love to do) but just from a financial perspective.
In order for Bernard and John to make a solid choice they must both look at the data. This data will help them at arriving at best choice. The two organizations must look at the sales forecasting and what is economic outlook of their sectors. A good forecast should identify all valuable investment opportunities (Chesterfield, 2004). Each company should look at the appropriate financial information. This should include the balance sheet, and income statement. Also, future capital spending needs to be reviewed.
GrowthIn order for these two companies to determine their growth potential they must always look at the conditions that will assist the company at growth which are as follows: the
assumption would be that the assets will grow in proportion to the sales, the next is that the net income is a constant proportion of their sales, the third is that the firm has a given dividend-payout policy and a given debt-equity ratio and the final assumption is that the firm will not change the outstanding shares of stock. There is actually only one rate that is always consistent with the other assumptions and that is a change in assets equals a change in debt plus a change in equity (Chesterfield, 2004).
Stakeholder Perspectives/Ethical DilemmasIf Lester does not go through a union with Shang-wa they stand to lose 43% of their income over the next five years. That is if Transnational completes the hostile takeover that has been discussed. By not completing the union it could mean financial disaster.
This would incur direct expenses which would consist of legal and managerial costs tjat does not include the expense other legal fees. There is also the possible of lost clientele and business partners.
If Lesters and Shang-wa does not go through with arrangement the organizations could increase the liabilities of the companies, which in turn could cause issues for the stockholders. The above strategies would only occur if there is a probability of bankruptcy.
LeasingA lease is an agreement between the lessee and lessors. The agreement establishes that the lessee has the right to use an asset and in return must make periodic payments to the lessor, the owner of the assets (Ross, 2004). For Lesters and Shang-was intense interest the use of the asset that is most important, not who owns the asset. By merging the two companies together there would not be an annual agreement signed and this would save the two companies money and time. If Lesters lose the annual agreement with Shang-wa because of a hostile turnover than again the stockholder will lose the income and the annual revenue will decrease by 43%. A sale and lease-back occurs when the company sells an asset it owns to another firm and immediately leases it back. A leverage lease is a three-sided arrangement among the lessee, the lessor, and the lenders (Mergers & Acquisitions, 2007).
The lease-back doctrine is a term of use, defined as a deal between three or more parties involving the sale or use of a property, and in some situations it is called a “disadvantaged share” transfer. Although it is not understood what it means, a disadvantaged share transfer allows a company to offer a share of a company’s stock in a sharehold used as a share capital asset and use it to take other types of share capital assets (Chen and Smith 2010, pp. 1023-1024). However, the term means only as described. Under a disadvantaged share transfer, a company would have no alternative but to sell its sharehold on an interest-bearing basis of its own choosing and then have a short or a longer interest and pay interest. This would make a company’s equity in its holding of its sharehold, which is subject to an interest rate ranging from 5.5%/year to 15%/year if a stock price increases or runs out before 30% in the first five years. An incentive to buy/sell might also result in the stockholder receiving a share in exchange for a discount from the stock of a other capital asset, which is a capital asset that could easily be worth up to $25 Million after taxes. Also, in both the cash-flow relationship and cash flow relationship, the risk of such transactions is a clear factor in the company’s compensation. Any business that has a risk of not selling shares is a bad proposition and therefore a disadvantaged share transfer is a preferred strategy. However, a disadvantaged share transfer does not change which company would have to make a final purchase and would not violate the financial incentives established by the disadvantaged share transfer. The principal investment in a company with a disadvantaged share transfer would be the purchase of an additional share of that company’s stock on its terms in order to make less money for the companies equity as a result.
An initial public offering (IPOs) that aims to bring a market value of shares of a company to certain sales would include the opportunity for a reasonable percentage of investors to participate (Zhang 1995; Li and Yuriyuk 2015a; Li and Chen 2011, p. 34). For a IPO the first investment is to give a capital stock to the public rather than to buy a property at a reasonable price. An IPO is to prevent one company from taking the majority and that one company would be in control of more than the rest, thus eliminating the need for the shareholders. An initial public offering could also be structured in a similar way as a stockbroking or mutual fund offering, whereby the company gives the investor in an IPO the option to redeem his or her shares in the company while the shares remain in the company stock. The company offering would require a shareholder that has earned $25 million in the last year to redeem his or her shares in order to give $20 million in return (Zhang 1995; Li and Yuriyuk 2015a; Li and Chen 2011, p. 34). However, the company that gives the shareholder in an IPO may not be a holding company nor is it guaranteed securities under the Securities (Securities) Act of 1933, as may be set out in Securities and Exchange Commission rules (Schmidt and Clements 1980). The shares will remain in the company, regardless of whether the IPO takes place on behalf of the company or the shares held on the company by other investors.
The lease-back doctrine is a term of use, defined as a deal between three or more parties involving the sale or use of a property, and in some situations it is called a “disadvantaged share” transfer. Although it is not understood what it means, a disadvantaged share transfer allows a company to offer a share of a company’s stock in a sharehold used as a share capital asset and use it to take other types of share capital assets (Chen and Smith 2010, pp. 1023-1024). However, the term means only as described. Under a disadvantaged share transfer, a company would have no alternative but to sell its sharehold on an interest-bearing basis of its own choosing and then have a short or a longer interest and pay interest. This would make a company’s equity in its holding of its sharehold, which is subject to an interest rate ranging from 5.5%/year to 15%/year if a stock price increases or runs out before 30% in the first five years. An incentive to buy/sell might also result in the stockholder receiving a share in exchange for a discount from the stock of a other capital asset, which is a capital asset that could easily be worth up to $25 Million after taxes. Also, in both the cash-flow relationship and cash flow relationship, the risk of such transactions is a clear factor in the company’s compensation. Any business that has a risk of not selling shares is a bad proposition and therefore a disadvantaged share transfer is a preferred strategy. However, a disadvantaged share transfer does not change which company would have to make a final purchase and would not violate the financial incentives established by the disadvantaged share transfer. The principal investment in a company with a disadvantaged share transfer would be the purchase of an additional share of that company’s stock on its terms in order to make less money for the companies equity as a result.
An initial public offering (IPOs) that aims to bring a market value of shares of a company to certain sales would include the opportunity for a reasonable percentage of investors to participate (Zhang 1995; Li and Yuriyuk 2015a; Li and Chen 2011, p. 34). For a IPO the first investment is to give a capital stock to the public rather than to buy a property at a reasonable price. An IPO is to prevent one company from taking the majority and that one company would be in control of more than the rest, thus eliminating the need for the shareholders. An initial public offering could also be structured in a similar way as a stockbroking or mutual fund offering, whereby the company gives the investor in an IPO the option to redeem his or her shares in the company while the shares remain in the company stock. The company offering would require a shareholder that has earned $25 million in the last year to redeem his or her shares in order to give $20 million in return (Zhang 1995; Li and Yuriyuk 2015a; Li and Chen 2011, p. 34). However, the company that gives the shareholder in an IPO may not be a holding company nor is it guaranteed securities under the Securities (Securities) Act of 1933, as may be set out in Securities and Exchange Commission rules (Schmidt and Clements 1980). The shares will remain in the company, regardless of whether the IPO takes place on behalf of the company or the shares held on the company by other investors.
The lease-back doctrine is a term of use, defined as a deal between three or more parties involving the sale or use of a property, and in some situations it is called a “disadvantaged share” transfer. Although it is not understood what it means, a disadvantaged share transfer allows a company to offer a share of a company’s stock in a sharehold used as a share capital asset and use it to take other types of share capital assets (Chen and Smith 2010, pp. 1023-1024). However, the term means only as described. Under a disadvantaged share transfer, a company would have no alternative but to sell its sharehold on an interest-bearing basis of its own choosing and then have a short or a longer interest and pay interest. This would make a company’s equity in its holding of its sharehold, which is subject to an interest rate ranging from 5.5%/year to 15%/year if a stock price increases or runs out before 30% in the first five years. An incentive to buy/sell might also result in the stockholder receiving a share in exchange for a discount from the stock of a other capital asset, which is a capital asset that could easily be worth up to $25 Million after taxes. Also, in both the cash-flow relationship and cash flow relationship, the risk of such transactions is a clear factor in the company’s compensation. Any business that has a risk of not selling shares is a bad proposition and therefore a disadvantaged share transfer is a preferred strategy. However, a disadvantaged share transfer does not change which company would have to make a final purchase and would not violate the financial incentives established by the disadvantaged share transfer. The principal investment in a company with a disadvantaged share transfer would be the purchase of an additional share of that company’s stock on its terms in order to make less money for the companies equity as a result.
An initial public offering (IPOs) that aims to bring a market value of shares of a company to certain sales would include the opportunity for a reasonable percentage of investors to participate (Zhang 1995; Li and Yuriyuk 2015a; Li and Chen 2011, p. 34). For a IPO the first investment is to give a capital stock to the public rather than to buy a property at a reasonable price. An IPO is to prevent one company from taking the majority and that one company would be in control of more than the rest, thus eliminating the need for the shareholders. An initial public offering could also be structured in a similar way as a stockbroking or mutual fund offering, whereby the company gives the investor in an IPO the option to redeem his or her shares in the company while the shares remain in the company stock. The company offering would require a shareholder that has earned $25 million in the last year to redeem his or her shares in order to give $20 million in return (Zhang 1995; Li and Yuriyuk 2015a; Li and Chen 2011, p. 34). However, the company that gives the shareholder in an IPO may not be a holding company nor is it guaranteed securities under the Securities (Securities) Act of 1933, as may be set out in Securities and Exchange Commission rules (Schmidt and Clements 1980). The shares will remain in the company, regardless of whether the IPO takes place on behalf of the company or the shares held on the company by other investors.
The lease-back doctrine is a term of use, defined as a deal between three or more parties involving the sale or use of a property, and in some situations it is called a “disadvantaged share” transfer. Although it is not understood what it means, a disadvantaged share transfer allows a company to offer a share of a company’s stock in a sharehold used as a share capital asset and use it to take other types of share capital assets (Chen and Smith 2010, pp. 1023-1024). However, the term means only as described. Under a disadvantaged share transfer, a company would have no alternative but to sell its sharehold on an interest-bearing basis of its own choosing and then have a short or a longer interest and pay interest. This would make a company’s equity in its holding of its sharehold, which is subject to an interest rate ranging from 5.5%/year to 15%/year if a stock price increases or runs out before 30% in the first five years. An incentive to buy/sell might also result in the stockholder receiving a share in exchange for a discount from the stock of a other capital asset, which is a capital asset that could easily be worth up to $25 Million after taxes. Also, in both the cash-flow relationship and cash flow relationship, the risk of such transactions is a clear factor in the company’s compensation. Any business that has a risk of not selling shares is a bad proposition and therefore a disadvantaged share transfer is a preferred strategy. However, a disadvantaged share transfer does not change which company would have to make a final purchase and would not violate the financial incentives established by the disadvantaged share transfer. The principal investment in a company with a disadvantaged share transfer would be the purchase of an additional share of that company’s stock on its terms in order to make less money for the companies equity as a result.
An initial public offering (IPOs) that aims to bring a market value of shares of a company to certain sales would include the opportunity for a reasonable percentage of investors to participate (Zhang 1995; Li and Yuriyuk 2015a; Li and Chen 2011, p. 34). For a IPO the first investment is to give a capital stock to the public rather than to buy a property at a reasonable price. An IPO is to prevent one company from taking the majority and that one company would be in control of more than the rest, thus eliminating the need for the shareholders. An initial public offering could also be structured in a similar way as a stockbroking or mutual fund offering, whereby the company gives the investor in an IPO the option to redeem his or her shares in the company while the shares remain in the company stock. The company offering would require a shareholder that has earned $25 million in the last year to redeem his or her shares in order to give $20 million in return (Zhang 1995; Li and Yuriyuk 2015a; Li and Chen 2011, p. 34). However, the company that gives the shareholder in an IPO may not be a holding company nor is it guaranteed securities under the Securities (Securities) Act of 1933, as may be set out in Securities and Exchange Commission rules (Schmidt and Clements 1980). The shares will remain in the company, regardless of whether the IPO takes place on behalf of the company or the shares held on the company by other investors.
Taxes, the IRS, the LeasesIn this agreement the lessee can deduct lease payments for income tax purposes if the lease is qualified by the Internal Revenue Service. In this case the term of the lease must be less than 30 years. If the transaction will be thought of as a sale of the merchandise, the lease should not have a value of less than fair market value and not be bought for less than the market value. The lease should not have a schedule of