Lester Electronic's Alternative Benchmarking
Running Head: FINANCING ALTERNATIVE BENCHMARKING
Lester Electronics Financing Alternative Benchmarking
Lester Electronics Financing Alternative Benchmarking
Lester Electronics is a consumer and electronics parts master distributor that markets its products to original equipment manufacturers. For many years, Shang-wa Company has been an exclusive supply agreement with Lester electronics. The CEO of Shang-wa is wishing to retire and has no formal succession plans for the company's management. Lester is set to lose 43% of their revenues if Shang-wa withdraws as a supplier. After much analysis, both Lester and Shang-wa agree that a merger between the two companies would be the best.
This alternative benchmarking will present findings and an analysis that evaluates weighted average cost of capital, recommends a financing mix that optimizes capital structures, analyzes risks associated with investment decisions as well as evaluates dividend policies on wealth maximization. The findings and analysis will provide valuable insight to LEI's Board of Directors as they decide which opportunities to pursue.
Determine the Weighted Average Cost of Capital
The Weighted Average Cost of Capital (WACC) is a calculation of a company's proportionately weighted capital according to specific categories. All sources of capital - common stock, preferred stock, bonds, and any other debt are included. Broadly speaking, a company's assets are financed by either debt or equity. WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation. By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances. A firm's WACC is often used internally, by company directors, to determine the economic feasibility of expansionary opportunities and mergers.
The average cost of capital is influenced by changes in the...
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