Lester Electronics Gap
Gap Analysis: Lester Electronics
Lester Electronics Inc. (LEI) has reached a decision; to merge with its long time supplier Shang-wa Electronics (SE) (UOP,2008). What remains is to prepare a finacial plan for the merger that will focus on all the possible challenges. Shareholders will want to know how this merger will impact them in the short term and how the combined company will look financially in the long term (Ross, Westerfield, & Jaffe, 2005 ). The Board of Directors will want complete details on the combined capital structure pre and post merger (Webster,2006). The Chief Financial Officer (CFO) that is chosen to facilitate merger companies will need to determine if the funding should come from the owners equity or outside debtitures. The Board of Directors will want to know how much it can afford and what the capital structure will look like. The company will need to formulate a successful financial plan that optimize the growth opportunities and maximize the shareholder's wealth (Caroll,2001).
Situation Analysis
Issue and Opportunity Identification
LEI need to analyze whether there is enough financial capacity to carry out the merger with SE. The financial team of LEI and SE will evaluate the company's cash flows to decide if they have enough money to merge with incurring any debt (Ross, Westerfield, & Jaffe, 2005). Through this evaluation process, LEI also needs to assess the timing of cash flows (Carroll, 2001). If LEI decides to merge with SE using some kind of debt instrument, the financial team will need to make certain that the timing of the cash flows is such that LEI and SE would be capable of making the principal and interest payments on the debt. To increase funds with out an impact on the financial statements is difficult (Ross, Westerfield, & Jaffe, 2005). With the successful completion of this evaluation, LEI and SE would be able to increase its financial standing within the industry (Yeldar, 2006).
SE will...
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