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Problem Solution: Lester Electronics
Lester Electronics, Inc. has decided to merge with its long time supplier Shang-Wa Electronics. The companies will need to prepare an implementation plan that focuses on the financial issues. Shareholders will want to know how this merger will impact them in the short term and how the combined company will perform financially in the future. Company leadership will need guidance on the combined capital structure post merger. The CFO will also need to determine if the funds exist or how funds can be raised. LEI will need to determine the capital structure. During this merger, Lester Electronics will need to make it their goal to build wealth by increasing the company’s value. This is accomplished when free cash flow returns are maximized in invested capital with the least amount of risk possible. Remaining financially stable will also be an objective for Lester as current and potential shareholders will need to believe in the stability of the organization.
Situation Analysis
Issue and Opportunity Identification
Poor management is a prime cause of business failure, but so is a lack of capital. If LEI does not have enough capital, the situation may become quite difficult. In addition to having sufficient capital, the CFO will need to plan how that capital is going to be used and managed. The CFO will not want to make critical errors by obtaining the wrong type of financing or errorounously estimating the amount of financing that will be needed. There are several ways to raise financing; self funding from existing cash flows, debt funding borrowed from others, and equity funding rose by selling to others an interest in the business.
The CFO will use finan ...