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Lester Electronics Financing Alternative Financing
Lester Electronics Incorporated (LEI) a United States (US) capacitor distributor and Shang-wa Electronics, a South Asian capacitor manufacturer have had a contract for over 35 years to manufacture and distribute capacitors both in the US and South Asia. The agreement however is in jeopardy with the recent inquiries of two companies Avral Electronics and Transnational Electronics Corporation (TEC) wanting to possibly acquire LEI and Shang-wa. If this occurs however, LEI stands to lose over 40% of its income because the agreement would be nullified with an acquisition. However, because LEI and Shang-wa's owners are friends as well as business partners they have determined to merge their companies. This will protect the interests of LEI and Shang-wa and will less the threats from Avral and TEC (University of Phoenix, 2007).
Because of the merger, the new LEI with Shang-wa will need to determine the best financial alternative mix to find the best optimal capital structure while maximizing shareholder wealth. This paper will address this issue by benchmarking other companies both in the electric components and capacitor industry as well as companies outside the industry to help them determine the optimal capital structure for the new LEI. This paper will explore weighted-average cost of capital, a financing mix that optimizes structure, analyzing risks associated with investment decisions, and evaluating dividend policy on wealth maximization and benchmark companies to help in this important decision making process.
Weighted Average Cost of Capital
The weighted-average cost of capital (WACC) is a formula that helps a company to find ...