Lester Electronics Financing Alternative

Lester Electronics Financing Alternative

Lester Electronics Incorporated (LEI) is a consumer and industrial electronics parts distributor who has made the decision to merge with Shang-Wa, a capacitor manufacturer who is located in Korea (University of Phoenix, 2009). LEI market its products to equipment manufacturers, repair facilities, and small local distributors throughout the Americas and Europe. LEI and Shang-wa have had an exclusive supply agreement that allows LEI to sell Shang-wa’s capacitors in the United States for the past 30 plus years. This contract is renewed annually between both parties to ensure that the needs of each company is being met and addressed. Under the agreement Shang-wa cannot sell capacitors to anyone else that chooses to sell in the United States. This gives LEI exclusive rights to sell the products in the United States.
LEI’ merging with Shang-Wa creates an opportunity to increase LEI value in the market and industry. LEI will use benchmarking as a tool to identify other company’s practices as related to its own current issues. The following benchmarked companies will address issues such as the weighted average cost of capital (WACC); financing mix that optimizes capital structure, risks associated with investment decisions and dividend policies on wealth maximization.

Financing Alternative
Weighted Average Cost of Capital
    Organizations seeking the best possible return on invested capital use weighted Average Cost of Capital (WACC). “The approach begins with the insight that projects of levered firms are simultaneously financed with both debt and equity” (Ross, et al., 2005, p.13). LEI will be able to analyze the profitability of return on capital should the firm decide to merge with Shang-wa. WACC is beneficial to companies due to the comparison of the average cost of debt and the cost of equity in determining if the project is worthwhile.
WACC uses a formula where the percentage of financing that is equity is multiplied by the cost of equity, plus...