2013년 11월 25일 월요일

About 'debt ratio total liabilities total assets'|Financial Ratios







About 'debt ratio total liabilities total assets'|Financial Ratios








Introduction               In               order               to               grow               a               business,               branch               into               new               areas,               or               carry               out               daily               operations,               companies               often               rely               on               different               methods               of               financing               to               achieve               their               goals.

Financing               allows               a               company               to               obtain               the               resources               they               need               immediately               and               repay               a               lender               over               time.

Appropriate               financing               is               almost               always               necessary               when               it               comes               to               mergers               and               acquisitions               because               of               the               myriad               costs               and               financial               considerations               associated               with               this               type               of               transaction.

To               determine               the               best               financing               plan               for               the               merger               with               Shang-wa               Electronics,               Lester               Electronics,               Inc.

(LEI)               will               follow               a               number               of               steps.
               An               analysis               of               the               various               issues               and               opportunities               available               will               uncover               possible               problems               but               also               benefits               that               may               have               been               previously               overlooked.

Identifying               the               values               and               beliefs               of               the               various               stakeholders               and               determining               possible               ethical               dilemmas               will               allow               the               company               to               make               an               informed               decision               with               their               stakeholder's               interests               in               mind.

Completing               these               steps               will               allow               LEI               to               formulate               end               state               goals               that               will               ultimately               be               used               as               a               measure               of               success               of               failure.

Subsequently,               LEI               will               gather               information               about               possible               solutions               and               analyze               the               risks               and               benefits               associated               with               each.

With               this               information               the               company               can               devise               mitigation               strategies               for               the               risks               then               develop               an               implementation               plan               to               carry               out               the               financing               strategy.

Lastly,               to               ensure               the               plan               is               working               correctly               and               the               goals               are               being               achieved,               the               company               will               devise               a               system               of               metrics               to               test               the               success               of               the               plan.

This               comprehensive               plan,               described               below,               will               result               in               an               optimal               financing               solution               for               LEI               that               will               allow               the               company               to               merge               successfully               with               Shang-wa               and               achieve               the               company's               end               vision.
               Issues               and               Opportunities
               Lester               Electronics,               Inc.

(LEI)               is               entering               into               a               billion               dollar               deal               with               Shang-wa               Electronics               (SWE)               to               become               a               manufacturer               and               distributor               of               precision               capacitors.

Before               the               merger               can               be               finalized,               the               bid               price               must               be               agreed               upon.

To               obtain               a               fair               and               equitable               price               for               the               merger,               valuation               of               SWE               is               necessary,               and               will               be               completed               prior               to               the               start               of               negotiations.

SWE               valuation               will               include;               company               assets,               earnings               before               interest,               taxes/depreciation,               and               any               shareholder               contributions               (Ross,               2005).

While               the               accounting               team               at               SWE               is               initiating               the               valuation               of               their               company,               LEI               will               be               completing               a               self-analysis               of               their               company               to               ascertain               the               allocation               of               sufficient               resources.

Resources               will               include;               financial,               time               constraints'               and               personnel.

Knowing               what               both               companies               have               to               work               with               and               contribute               to               the               merger               is               important               for               optimum               success.
               This               merger               will               be               initiated               for               many               reasons               some               of               them               are;               cutting               company               cost,               avoiding               a               hostile               takeover               bid               from               a               competitor               and               maximizing               profits               for               both               LEI               and               SWE.

The               business               of               merging               two               companies               that               produce               a               product               that               is               synergistic               is               a               vertical               merger,               which               will               have               some               advantages               during               production.

The               necessity               to               purchase               of               lease               additional               equipment               and               facilities               is               not               required               during               initial               start-up.

This               will               assist               in               maintaining               the               working               capital               budget,               cash               flow               and               other               resource               allocations               (Ross,               2005).
               The               key               stakeholders               in               the               merger               will               be               the               two               men               responsible               for               the               companies               since               their               individual               inceptions.

They               are               Bernard               Lester               Chief               Executive               Officer               (CEO)               and               founder               of               Lester               Electronics,               Inc.

and               John               Lin               CEO               and               founder               for               Shang-wa               Electronics.

Neither               men               has               family               willing               to               take               their               companies               into               the               future               and               are               unwilling               to               see               their               life's               work               destroyed,               this               merger               is               a               continuation               of               growth               for               both               industries.

In               addition               to               themselves,               LEI               is               a               publicly               traded               company               (Company               Overview,               2005).

The               investors               will               also               have               a               marginal               say               in               the               merger               proposition               and               any               future               dividends               from               the               company               unless               Lester               is               able               to               buy               back               outstanding               stock.
               The               opportunities               that               both               companies               face               are               increases               in               company               wealth               by               finalizing               the               merger               in               a               practical               and               ethical               manner.

Using               the               data               produced               through               internal               and               external               valuation               analysis               for               each               company,               strategies               can               be               formulated               to               include               most               aspects               of               the               combined               resources.

The               possibility               for               becoming               a               global               industry               is               high               and               favors               a               merger               of               companies               thereby               insuring               continued               success               in               the               electronics               markets.

New               product               development               is               also               an               option               for               the               newly               merged               companies               as               well               as               diversity               in               products               to               include               more               that               capacitors.

The               chance               to               streamline               the               company's               personnel               will               be               self-evident               during               and               after               merger.

The               parent               company               will               benefit               from               high               market               share               due               to               a               decrease               in               manufacturing               cost.
               Stakeholder               Perspectives/Ethical               Dilemmas
               Several               stakeholders               are               involved               in               the               acquisition               of               Shang-wa               Electronics               (SWE)               by               Lester               Electronics               Inc               (LEI).

Mr.

Lin               founded               SWE               in               1969               and               started               a               supply               agreement               with               LEI               in               1978               (Company               Overview,               2008).

As               a               result               Mr.

Lin               has               formed               a               lasting               relationship               and               a               great               deal               of               respect               for               the               way               LEI               manages               their               corporation.

If               Mr.

Lester,               the               founder               and               Chief               Executive               Officer               (CEO)               of               LEI,               agrees               to               the               merger               of               SWE               and               LEI               the               global               expansion               along               with               an               expert               management               team               will               allow               Mr.

Lin               to               take               time               off               to               spend               with               family               and               eventually               get               out               of               the               business               altogether.In               addition               this               merger               would               allow               LEI               to               market               domestic               made               parts               internationally.

The               acquisition               of               SWE               could               make               this               possible               and               as               a               bonuswould               eliminate               some               of               their               competition               in               the               process.

This               acquisition               would               end               Transactional               Electronics               Corporations               (TEC)               quest               of               acquiring               SWE.

But               Mr.

Lester               should               not               take               too               much               time               in               making               his               decision.

Due               to               previous               mergers               and               acquisitions               TEC               has               raised               enough               resources               to               not               only               expand               globally               but               to               perform               a               hostile               takeover               of               SWE.

This               hostile               takeover               of               SWE               would               aide               in               the               accomplishment               of               one               of               Mr.

Antone's,               the               CEO               of               TEC,               goals               of               global               expansion.

One               of               the               last               things               Mr.

Lester               wants               is               the               acquisition               of               SWE               by               TEC.

If               TEC               does               perform               a               hostile               takeover               of               SWE,               LEI               would               lose               their               exclusive               agreement               with               SWE               along               with               over               40%               in               revenue.

In               addition               to               the               pending               mergers               and               or               takeover               involving               SWE,               Avral               Electronics               is               also               inquiring               about               forming               a               merger               with               LEI.
               Robert               Paget               the               Vice               President               of               Acquisitions               at               Avral               Electronics               is               known               as               an               aggressive               "go               getter"               and               has               been               with               Avral               Electronics               for               five               years               (Company               Overview,               2008).

During               Mr.

Paget's               tenure               at               Avral               Electronics               he               has               negotiated               and               purchased               six               noteworthy               electronic               companies.

These               acquisitions               have               increased               Avral's               external               annual               revenue               from               $300               million               to               $900               million.

As               a               result               of               his               hard               work               and               contributions               to               Avral,               he               was               recently               promoted               to               Vice               President               of               Acquisitions.

In               effort               to               expand               into               the               United               States'               electronic               industry,               Avral               would               like               to               acquire               LEI.

If               this               acquisition               of               LEI               goes               through               it               would               greatly               enhance               Mr.

Paget's               resume'.

Mr.

Peter               Zack,               is               the               Managing               Director               of               Silver               Socks               Company               (Company               Overview,               2008).

He               is               from               a               well               connected               Philadelphia               family               with               a               great               deal               of               old               money               (Company               Overview,               2008).

Mr.

Zack               received               his               current               position               at               Silver               Socks               due               to               his               family's               connections               (Company               Overview,               2008).

He               is               currently               representing               Avral               Electronics               a               company               of               which               his               old               college               roommate               who               just               happens               to               be               the               vice               president               (Company               Overview,               2008).

Although               Mr.

Zack               has               made               deals               happens               in               the               past               this               would               be               an               excellentopportunity               for               him               to               show               how               deserving               he               is               of               his               current               position               at               Silver               Socks.
               Problem               Statement
               Lester               Electronics               Inc.

(LEI)               is               faced               with               the               issue               of               financing               the               acquisition               of               Shang-wa.

Many               opportunities               exist               for               LEI,               however,               no               one               strategy               will               be               the               perfect               fit.

Determining               the               best               way               to               diversify               the               financing               for               the               acquisition               is               the               major               issue.

LEI               is               not               in               a               position               to               be               able               to               borrow               enough               to               cover               the               acquisition.

Any               new               stock               that               is               issued               will               lower               the               value               of               the               current               stock.

With               LEI's               inability               to               finance               all               the               money               needed,               some               new               stock               will               need               to               be               issued,               but               the               amount               has               to               be               determined               so               current               values               do               not               drop               drastically.
               End-State               Goals
               Lester               Electronics               Inc.

(LEI)               has               several               goals               it               wants               to               accomplish.

The               merger               with               Shag-wa               Electronics               (SWE)               will               enable               LEI               to               achieve               the               goals               they               have               set.

One               goal               Lei               wants               to               accomplish               is               to               preserve               the               competitiveness               and               longevity               of               the               company.

The               possible               sale               of               SWE               to               TEC               would               have               hurt               LEI's               place               in               the               market               and               most               likely               force               LEI               to               sell               to               Avral.

The               merger               keeps               a               long               standing               relationship               intact               and               LEI               in               supply               of               the               capacitors               they               need.
               The               merger               with               SWE               will               force               LEI               to               finance               the               acquisition.

LEI               will               use               a               combination               of               different               strategies               to               finance               the               acquisition.

Using               different               financing               strategies               will               keep               stock               prices               from               falling               drastically               by               not               issuing               all               new               stock               to               finance               the               acquisition.

The               combination               will               also               keep               LEI               from               going               into               debt               to               far               and               cause               them               to               struggle               financially.
               The               acquisition               of               SWE               will               ensure               the               supply               of               capacitors               needed               by               LEI               to               continue               producing.

Without               the               capacitors,               LEI               would               have               to               outsource               to               another               company               possibly               for               a               higher               cost               and               be               without               the               long               standing               and               working               relationship               they               had               with               SWE.

The               acquisition               will               also               give               LEI               new               products               that               have               not               produced               before.

LEI               can               use               the               new               products               they               acquire               to               supply               other               companies               and               increase               their               profit               margin.

After               the               acquisition               of               SWE               a               new               factory               will               be               leased               in               Korea               expanding               LEI's               market               into               other               regions.

All               the               goals               set               will               ensure               LEI's               competitiveness,               longevity,               increase               profit,               and               give               LEI               better               financial               stability.
               Alternative               Solutions
               When               corporations               merge,               one               of               them               is               designated               as               the               surviving               corporation.

While               acquiring               a               business               through               merging,               some               companies               may               believe               this               to               be               an               attractive               alternative               compared               to               business               failure;               it               does               carry               with               it               some               consequences.

The               surviving               corporation               continues               in               existence               while               the               acquired               company               does               not.

In               addition,               the               surviving               corporation               acquires               all               the               rights,               title               and               interests               to               real               estate               and               other               property               owned               by               the               other               corporation               without               impairment               or               encumbrances.

This               would               certainly               be               of               benefit               to               Lester               Electronics,               Inc.

(LEI).
               Alternatives               to               a               merger               are               dependent               on               the               type,               size,               and               purpose               for               the               co-mingling               of               two               businesses.

One               alternative               could               be               that               of               the               formation               of               a               partnership               where               each               owner               shares               with               each               other               the               profits'               or               losses               of               the               business.

Several               types               of               partnerships               are               available               for               consideration               however,               for               this               paper               a               silent               partnership               might               be               a               feasible               option.

Because               the               silent               partner               still               shares               in               the               profits               and               losses               but               is               un-involved               in               its               management               which               would               be               in-line               with               John               Lins'               desire               to               be               with               his               family.

Another               alternative               would               be               for               Shang-wa               Electronics               (SWE)               to               reorganize               its               financial               and               sales               personnel               interest               to               include               diversifying               into               distributing               the               capacitors               from               his               company               without               LEI.

However,               this               would               require               that               John               Lin               remain               as               CEO               of               his               company               unless               he               relinquishes               his               title               and               responsibilities'               to               another.

A               reverse               in               merger               direction               can               be               considered               with               SWE               acquiring               LEI               and               becoming               the               primary               surviving               company               this               is               not               likely               but               is               an               alternative.

Other               alternatives               are               for               LEI               to               reorganize               its               internal               structure               to               include               internet               exclusive               commerce               that               will               lower               the               need               for               duality               of               personnel               and               increase               its               profit               ratio               through               strong               capital               budgeting.

Streamline               the               personnel               and               save               on               tax               contributions               from               their               earnings.

Creating               a               global               business               without               having               multi-facilities               and               operating               from               a               central               plant               to               be               determined               post               merger               saving               cash               flow               through               budget               control               will               assist               in               maximizing               shareholder               wealth.

Issuing               additional               stock               to               attain               financial               resources'               to               acquire               computer               equipment,               specialized               data               entry               systems,               and               training               of               personnel               will               be               necessary               for               this               alternative.

Finally,               an               unlikely               alternative               is               to               allow               the               bid               for               LEI               to               proceed.

Losing               years               of               hard               work               and               sacrifice               along               with               a               company               on               the               verge               of               success               is               what               makes               this               an               unlikely               scenario               as               well               as               a               wasted               endeavor.
               Analysis               of               Alternative               Solutions
               After               a               careful               analysis               of               Lester               Electronics,               Inc.

(LEI)               alternative               solutions               table,               three               indicates               the               rating               matrix               of               how               the               final               solution               was               determined.

The               objective               of               LEI               decision               to               proceed               with               the               merger               was               to               maximize               shareholders               wealth,               remains               competitive               within               the               industry,               and               to               manufacture               new               products.

The               first               alternative               was               to               form               a               partnership               rated               2.17.

Choosing               this               alternative               could               help               with               the               problem               of               maximizing               shareholders               wealth               and               even               help               the               new               partnership               be               competitive               but               risks               exist               that               would               make               this               a               more               viable               solution               for               either               LEI               or               Shang-wa               Electronics               (SWE).

The               second               alternative               involves               the               restructuring               of               the               company's.

With               a               rating               of               1.42,               this               would               be               a               second               option               that               will               help               LEI               finance               the               acquisition               of               SWE               while               reducing               risks.

By               using               diversifying               techniques,               this               option               would               help               with               some               of               the               potential               risks               that               LEI               will               be               facing.

The               third               alternative               rates               a               1.00.

LEI               management               would               be               able               to               maximize               shareholders               wealth               and               remain               competitive               this               option               provides               the               greatest               protection               against               risks               both               domestically               and               in               foreign               countries.
               When               selecting               the               best               alternative               to               proceed               with               all               factors               that               will               affect               the               business               venture               must               be,               consider               and               weight               against               the               goals               of               the               business               to               ensure               that               the               best               solution               is               chosen               that               will               help               the               company               in               the               long-term.

Since               LEI               has               considered               the               alternative               that               will               help               with               the               acquisition               of               SWE,               LEI               must               consider               the               potential               risks               involved               with               each               alternative.
               Risk               Assessment               and               Mitigation               Techniques
               When               certain               business               decisions               are               made,               managers               need               to               look               beyond               the               obvious               risks               and               recognize               all               sources               of               uncertainty.

The               ability               to               recognize               and               take               advantage               of               trends               and               opportunities               by               identifying               and               mitigating               these               weaknesses               and               threats               will               be               crucial               the               merger               between               Lester               Electronics,               Inc.

(LEI)               and               Shang-wa               Electronics               (SWE)               is               critical.

LEI               have               narrowed               their               possible               alternatives               down               to               forming               a               partnership,               diversifying,               and               global               business.
               By               forming,               a               partnership               (silent)               this               would               expose               LEI               and               SWE               to               certain               risks               and               consequences               that               each               partner               must               protect               themselves               from               legal               ramifications.

Some               of               the               risks               associated               with               this               alternative               are               the               potential               for               greater               personal               liability               as               opposed               to               forming               a               corporation               with               this               type               of               partnership               raising               additional               capital               might               be               difficult.

Although               a               silentpartner               is               inactive               in               the               operation               of               the               business,               they               have               legal               obligations               and               benefits               of               ownership,               and               are               therefore,               fully               liable               for               any               debts               (Bloomsbury               Business               Library,               2007,               p.

6832).

The               partnership               is               dissolve               when               either               of               the               partners               dies               and               the               transfer               of               ownership               is               difficult.

With               this               type               of               partnership,               legal               problem               may               arise               in               which               LEI               and               SWE               should               prepare               an               Article               of               Partnership               that               will               state               what               each               partners               business               relationship               to               the               company               would               be.

The               Articles               of               Partnership               should               include               the               placement               of               capital,               labor,               skill,               and               the               sharing               of               profits               and               losses.

As               a               last               resort,               arbitrators               may               be               called               in               to               help               the               partners               settle               on               going               disputes.
               The               second               alternative               examines               the               risk               that               LEI               and               SWE               would               face               if               diversifying               were               the               chosen               option               for               the               new               business               venture.

A               major               factor               that               influences               diversify               risks               is               unsystematic               risk               and               systematic               risk.

These               risks               include               events               that               may               not               be               in               the               direct               control               of               management               like               strikes,               natural               disasters,               a               fire,               and               even               sluggish               sales               that               will               result               in               either               business               or               financial               risks.

Diversification               can               help               to               reduce               portfolio               risk               by               eliminating               un-systematic               risk               for               which               investors               are               not               rewarded.

Investors               are               rewarded               for               taking               market               risk.

Because               diversification               averages               the               returns               of               the               assets               within               the               portfolio,               it               attenuates               the               potential               highs               (and               lows).

Diversification               among               companies,               industries               and               asset               classes               affords               the               investor               the               greatest               protection               against               business               risk,               financial               risk               and               volatility               (TD               Ameritrade,               Inc.

2003).

LEI               can               protect               the               company               against               fires               by               purchasing               insurance               that               will               cover               the               company's               assets               in               the               event               that               fire               happens.

Since               some               insurance               company's               are               reluctant               to               insure               businesses               against               natural               disasters               LEI               should               look               into               other               measures               that               will               alleviate               this               risk.

To               protect               against               sluggish               sales               of               a               particular               product               the               company               can               introduce               new               products               to               the               market               that               would               generate               cash               flow.
               The               final               risks               analysis               involves               a               global               business               where               currency               exposure               (exchange               rate)               would               be               a               big               risk.

Since               LEI               will               be               conducting               business,               transaction               in               a               foreign               country               but               still               maintaining               their               domestic               company               LEI               would               face               certain               exchange               risks               if               they               pursue               an               independent               monetary               policy.

To               avoid               currency               crises,               a               country               can               have               a               fixed               exchange               rate               or               flexible               exchange               rate,               but               not               a               fixed               yet               adjustable               exchange               rate,               when               international               capital               markets               are               integrated               (Eun               &               Resnick,               2004,               p.

52).

LEI               should               consider               three               risks               factors               of               currency               exposure               when               selecting               the               best               alternative               for               the               new               business               venture.

Transaction               exposure               occurswhen               a               company               faces               contractual               cash               flows               that               are               fixed               in               a               foreign               currency               where               the               amount               of               foreign               currency               is               receivable               or               payable.

Translational               exposure               is               the               risk               of               the               net               worth               of               a               company               changing               because               of               the               fluctuating               home               valuation               of               assets               and               liabilities               denominated               in               foreign               currencies.

It               arises               from               converting               a               multinational's               overseas               subsidiaries               translated               from               local               currency               to               home               currency               prior               to               consolidation               with               the               parent's               financial               statements               (Lecture               6,               2007).

Economic               exposure               occurs               when               a               company               cash               flows               and               market               value               are               affected               by               unexpected               changes               caused               by               exchange               rates.

One               technique               the               company               can               use               to               protect               itself               from               currency               exposure               is               through               hedging               which               establishes               a               position               for               the               company               to               gain               what               is               lost               through               currency               exposure.

Hedging               can               reduce               the               company's               volatility               of               cash               flows               because               the               company's               payments               and               receipts               are               not               forced               to               fluctuate               in               accordance               with               currency               movements.

This               can,               in               the               extreme,               reduce               the               possibility               of               bankruptcy               and               therefore,               allow               easier               access               to               credit               and               lower               interest               payments               due               to               lower               perceived               risk.

Hedging               should               also               allow               for               greater               certainty               about               future               receipts               and               payments               and               consequently               enhanced               budgetary               decisions.

Most               hedging               strategies               are               costly               in               terms               of               fees,               premiums               or               the               time               involved               (Lecture               6,               2007).
               Optimal               Solution
               In               order               for               Lester               Electronics,               Inc.

(LEI)               to               compete               in               the               global               consumer               and               industrial               capacitor               market,               the               company               will               need               to               develop               a               new               implementation               plan               to               focus               on               merging               with               Shang-wa               Electronics               (SWE)               and               to               maximize               shareholder               wealth.

The               newly               formed               senior               leadership               team               will               need               to               work               together               for               consistency               across               all               area               functions               and               come               to               agreement               about               issues               and               concerns.

Combined,               total               assets               are               at               $395K               while               liabilities               are               at               $197K.

The               current               ratio               is               $2.01               which               means               LEI               will               have               enough               resources               to               pay               their               debt               over               the               next               12               months.

The               balance               sheetis               an               accountant's               snapshot               of               the               firm's               accounting               value               on               a               particular               date,               as               though               the               firm               stood               momentarily               still               (Ross,               Westerfield,               Jaffe,               2004).

LEI               is               showing               solid               short-term               financial               strength               to               help               with               the               opening               of               the               new               Asia               manufacturing               plant.

The               long-term               debt               ratio               is               at               $0.68               combined.

This               will               be               reduced               in               24               months               to               increase               equity               in               the               balance               sheet               LEI               will               lease               the               building               and               equipment               for               the               new               Asia               manufacturing               plant               for               capacitors.

The               initial               capital               budget               of               $60M               can               be               reduced               by               74%.
               Lester               /               Shang-wa               Joint               Venture
               Capital               Budget
               New               Asian               Capacitor               Manufacturing               Facility
               Lease               of               Building
               Construction               Contract
               38,850,000
               0
               Land
               6,000,000
               (Lease               .10sq               ft               X               50,000               ft               for               5               yr)               300,000
               Local               Taxes
               1,500,000
               1,500,000
               Personnel
               1,500,000
               1,500,000
               Administrative
               1,500,000
               1,500,000
               Marketing
               150,000
               150,000
               Furniture               &               Fixtures
               4,500,000
               4,500,000
               Computers
               750,000
               750,000
               Equipment
               5,250,000
               5,250,000
               Total
               60,000,000
               15,450,000
               LEI               should               lease               the               manufacturing               plant               to               allow               the               company               to               save               money               on               construction               costs               and               use               the               money               to               purchase               other               capital               equipment               if               needed.

The               company               will               also               increase               tax               deductions,               lower               interest               rates,               and               improve               their               financial               ratio.

The               lease               plan               chosen               by               LEI               will               allow               payment               flexibility               to               meet               cash               flows.

Other               opportunities               to               lease               equipment,               furniture,               and               computers               are               reducing               technology               obsolescence,               including               training,               maintenance,               installation               costs,               and               allowing               the               company               to               upgrade               to               the               latest               equipment.

With               the               addition               of               this               new               manufacturing               plant               LEI               will               now               hold               a               12%               market               share               in               distribution               in               Asia.

Once               LEI               starts               increasing               manufacturing               of               aluminum               electrolytic               and               film/plastic               by               56%               and               63%               the               company               will               see               an               increase               in               revenues               by               $14M.
               LEI               will               use               the               Weighted               Average               Cost               of               Capital               (WACC)               to               measure               the               capital               discount               the               company               is               either               gaining               or               spending.

The               WACC               will               tell               LEI               the               minimum               rate               of               return               they               will               produce               for               their               investor's.

To               find               LEI's               rate               of               return               the               WACC               is               calculated               by               the               following               formula:
               Example:
               LEI               merged               with               SWE:
               Re               =               cost               of               equity
               (33%               *               12)               +               (66%               *               8)               =               9.24%
               Rd               =               cost               of               debt
               (33%               *               8.4)               +               (66%               *               8)               =               8%
               E               =               market               value               of               the               firm's               equity
               LEI               (E)=$252,949               +               SWE               (E)=$142,293
               Total               =$395,242
               D               =               market               value               of               the               firm's               debt
               LEI               (L)=$91,249               +               SWE               (L)=$105,878
               Total               =$197,127
               V               =               E               +               D
               LEI               =               (E)$252,949               +               (L)$91,249               =$344,198
               SWE               =               (E)$142,293               +               (L)$105,878               =$248,171
               Total               =$592,369
               E/V               =               percentage               of               financing               that               is               equity
               $395,242/$592,369               =               66%
               D/V               =               percentage               of               financing               that               is               debt
               $197,127/$592,369               =               33%
               Tc               =               corporate               tax               rate
               12               *               (1               -               0.3)               =               8.4%
               WACC               =               $395,242/$592,369               *               9.24%               +               $197,127/$592,369               *               8%               *               (1-8.4%)               =               8%.
               LEI               combined               with               SWE               are               producing               a               20%               rate               of               return               and               a               WACC               of               8%.

Every               dollar               LEI               invests               into               capital               the               company               is               creating               value               and               making               a               profit               to               reinvest               or               payout               in               dividends               to               shareholders.

LEI               will               review               their               current               mix               of               equity               and               debt               by               developing               opportunities               to               maximize               the               company's               value               while               minimizing               the               average               cost               of               capital.

Net               Income               (NI)               is               at               $51K               with               a               return               on               assets               approaching               $0.47.

NI               for               LEI               shows               the               cost               of               debt               is               lower               than               the               cost               of               equity               from               the               WACC               assessment.
               LEI               is               showing               a               $0.68               long-term               debt               ratio               that               the               company               owes               and               does               not               expect               to               pay               off               in               a               year.

Along               with               their               high               debt-equity               ratio               of               $1.83               the               company               is               financing               their               growth               with               debt               which               can               lead               to               inconsistent               earnings               and               additional               interest               expenses.

The               company               holds               a               high               total               debt               ratio               of               $1.10               which               is               not               good.

The               opportunity               is               to               use               the               dollars               saved               from               leasing               the               manufacturing               plant               to               pay               down               outstanding               debt.

Either               way               the               company               must               act               quickly               and               move               forward               with               a               complete               overhaul               for               success.
               Implementation               Plan
               Lester               Electronics,               Inc.

(LEI)               will               need               to               stay               competitive               in               the               capacitor               manufacturing               industry               by               merging               with               Shang-wa               Electronics               (SWE)               and               developing               an               implementation               plan               within               the               next               three               months.

LEI               biggest               competition               is               Avral               Electronics               with               14%               of               the               market               share               in               the               capacitor               industry.

LEI               will               lease               a               manufacturing               plant               and               the               capital               equipment               necessary               to               open               the               Asia               capacitor               project               in               the               next               three               to               six               months.

The               start-up               costs               will               be               $15.4M,               but               revenue               will               exceed               $39.1M               within               the               first               year               with               the               increase               capacity               production               of               aluminum               electrolytic               and               film/plastic               commodities.

Excess               revenues               will               also               pay               off               outstanding               debt               inherited               from               SWE.
               LEI               will               set               inventory               turn               rates               in               the               new               Asia               manufacturing               plant               using               the               inventory               turnover               ratio               to               reduce               debt               and               move               products               timely.

Currently,               the               company               is               showing               a               turn               rate               of               15.47               which               LEI               will               implement               into               the               new               manufacture               plant               by               month               nine.

The               company's               inventory               turn               ratio               is               higher               than               their               competition               which               is               good               because               a               higher               ratio               indicates               strong               sales               and               limits               excess               inventory               or               holding               costs.

LEI               will               reduce               dividends               per               share               from               $0.49               to               $0.40               to               help               fund               dollars               for               capital               expenditures               by               the               end               of               month               12.

The               dividend               payout               ratio               is               currently               at               40%.

This               means               that               40%               of               LEI's               profits               were               paid               to               shareholders               versus               their               competition.

This               will               reduce               the               dividend               yield               ratio               from               43%               down               to               32%               which               will               still               give               shareholders               a               return               on               investment               and               still               attract               new               investors.
               LEI               will               open               a               new               capacitor               manufacturing               plant               in               Asia               to               meet               growing               demand               in               the               next               12               months.

In               order               for               the               merger               to               be               successful,               LEI               must               begin               to               review               and               establish               new               guidelines               for               the               changes               that               are               taking               place.

LEI               and               SWE               must               change,               merge,               and               edit               the               following:
               ·               Develop               new               Organization               Chart               and               Governance               Board
               ·               Board               of               Director               positions
               ·               Senior               Leadership               positions
               ·               Duplication               of               workforce
               ·               Addition               of               workforce
               ·               Update               Policies               and               Procedures
               ·               Review               Human               Resource               Department               (hire,               training,               orientation)
               ·               Employee               benefits               (healthcare,               dental,               401K)
               ·               Tax               reporting               changes
               ·               Government               regulations               and               restrictions
               ·               Stock               options,               issues,               and               dividends
               LEI               will               reduce               their               debt-ratios               to               equity               mix               by               producing               consistent               earnings               to               shareholders               and               reduce               interest               expenses.

The               company               currently               holds               a               high               debt               ratio               but               through               the               acquisition               of               SWE,               LEI               will               develop               a               new               strategy               that               will               maximize               shareholder               wealth.

This               will               strengthen               the               company               cash               flows               and               help               position               LEI               in               the               marketplace               for               future               growth.
               Evaluation               of               Results
               As               mentioned               above,               specific               goals               should               be               formed               that               support               the               company's               implementation               plan.

Without               these               goals               the               company               has               no               specific               end               the               company               can               look               toward               achieving.

Whether               or               not               the               company               has               been               successful               is               unclear               because               it               has               no               measure               of               success               or               failure.

To               combat               the               lack               of               achievable               benchmarks               Lester               Electronics,               Inc.

(LEI)               can               link               specific               metrics               to               each               goal.

These               metrics,               which               are               specific               and               measurable,               allow               a               company               to               compare               progress               to               a               set               standard.

The               standard               represents               success               and               the               company               is               able               to               determine               whether               or               not               they               have               been               successful.
               In               order               to               determine               if               LEI               has               been               successful               in               preserving               their               competitive               advantage               the               company               will               aim               to               achieve               14%               of               the               Asian               market               share               and               20%               of               the               US               market               share               within               the               next               5               years.

To               test               whether               or               not               LEI               has               effectively               sustained               their               longevity               the               company               will               simply               determine               each               year               if               the               company               is               still               conducting               profitable               business.

The               company               will               measure               the               number               of               capacitators               supplied               to               make               sure               the               number               is               equal               or               greater               than               before               the               merger.

The               number               of               capacitators               will               determine               whether               or               not               the               company               has               been               successful               at               ensuring               the               supply               of               capacitators.

Preventing               a               steep               drop               in               the               price               of               stock               is               another               goal               for               LEI.

Success               will               be               defined               as               a               drop               of               10%               or               less               in               the               stock               price               following               the               2               years               immediately               after               the               merger.

To               determine               whether               or               not               LEI               has               successfully               ventured               into               other               markets               LEI               will               aim               to               enter               two               new               markets               over               the               next               5               years.

If               the               company               does               this               they               will               have               been               successful,               if               not               they               will               have               failed               to               achieve               this               particular               goal.

Lastly,               LEI               wants               to               ensure               their               finances               remain               stable.

The               metric               for               this               goal               will               be               the               company's               debt/equity               ratio.

The               company               will               consider               this               goal               met               if               they               are               able               to               keep               the               debt/equity               ratio               at               1               or               under.

If               the               ratio               is               above               this               they               will               have               failed               to               achieve               this               goal.
               Applying               specific               metrics               to               company               goals               provides               a               simple               way               to               determine               whether               or               not               goals               have               been               met.

The               company               can               then               use               this               information               to               identify               and               improve               in               the               areas               they               are               lacking.

Without               these               metrics               a               company               has               no               specific               way               to               measure               their               successes               or               failures.
               Conclusion
               The               acquisition               of               a               company               by               another               company               should               be               viewed               as               an               investment               with               an               uncertain               outcome.

In               Lester               Electronics,               Inc.

(LEI)               situation               they               decided               to               form               a               merger               with               Shang-wa               Electronics               (SWE.

In               order               for               this               merger               to               be               successful,               LEI               and               SWE               needed               a               sound               corporate               and               financial               plan.

"When               one               firm               acquires               another,               it               must               choose               the               legal               framework,               the               accounting               method,               and               tax               status"               (Ross,               Westerfield,               Jaffe,               2004,               p.

796).

In               addition               to               the               above               decisions,               both               companies               also               had               to               decide               on               end               state               goals               and               alternative               solutions               along               with               analyze               the               risks               and               benefits               associated.

Once               the               optimal               solution               was               made               the               CEO,               board               of               directors               and               shareholders               had               to               come               up               with               an               implementation               plan               and               measure               these               results               against               a               set               of               metrics               previous               agreed               upon.

Although               no               plan               is               100%               fail               proof,               when               it               comes               to               acquisitions               and               mergers,               making               the               right               decisions               and               implementing               the               right               plans               can               greatly               increase               the               chance               of               a               successful               merger.

Resulting               in               maximizing               shareholder's               wealth               through               enhanced               revenues,               lower               taxes,               cost               reduction               and               lower               cost               of               capital.
               References
               Bloomsbury               Business               Library               -               Business               &               Management               Dictionary.

Silent               Partner.
               (2007).

Retrieved               March               15,               2008               from               EBSCOhost               database
               Lecture               6.

Currency               Exposure.

(2007).

Retrieved               March               15,               2008               from
               http://accfinweb.account.strath.ac.uk/am/tml6.htmlRoss,               Westerfield,               Jaffe               (2004).

Accounting               Statements               and               Cash               Flows.

New               York:               The               McGraw-Hill               Companies.
               Ross,               Westerfield,               Jaffe               (2004).

Financial               Planning               and               Growth.

New               York:               The               McGraw-Hill               Companies.
               Ross,               Westerfield,               Jaffe               (2004).

Mergers               and               Acquisitions.

New               York:               The               McGraw-Hill               Companies.
               TD               AMERITRADE,               Inc.

The               Importance               of               Diversification               (2003).

Retrieved               March               15,               2008
               from               http://www.ameritradefinancial.com/educationv2/fhtml/learning/diversification.fhtm
               Unknown               author               (2008)               Lester               Electronics               A               Company               Overview               Retrieved               from
               http://ecampus.phoenix.edu
               Table               1               -               Issue               and               Opportunity               Identification
               Issue
               Opportunity
               Reference               to               Specific
               Course               Concept
               (Include               citation)
               Concept
               Lester               Electronics               to               merge               with               Shang-wa               Electronics               completing               company               valuation               to               facilitate               agreement               of               an               ethical               and               fair               bid               in               preparation               for               corporate               financing               (Ross,               2005).
               Obtaining               financing               to               process               the               merger               with               Shang-wa               Electronics               that               is               both               accommodating               to               continued               company               growth               and               not               burdensome               to               capital               gains               taxation.
               New               strategies               for               best               practices               by               developing               and               implementing               a               vision               &               mission               statements               and               overall               corporate               objectives               as               a               guide               to               corporate               purpose               to               increase               profits
               Acquisition               of               manufacturing               facilities               to               develop               and               produce               new               product               to               assist               in               maximizing               wealth               for               the               now               merged               corporations.

This               is               a               winning               proposition               utilizing               company               diversity               of               purpose
               Both               companies               will               benefit               by               creating               a               strong               and               viable               corporation.

With               the               ability               to               increase               shareholder               wealth               by               avoiding               company               takeover               bids               (Company               Overview,               2005).
               The               probability               of               becoming               a               global               all               inclusive               manufacturer               and               distributor               of               precision               electronic               capacitors               (Company               Overview,               2007).
               Establishing               a               corporate               chain               of               command               and               cutting               redundancy               in               personnel               after               merger.

Streamlining               the               business               and               increasing               net               working               capital               through               elimination               of               un-necessary               wages               (Ross,               2007).
               To               begin               the               new               company               on               a               high               note               of               accomplishment               by               developing               a               product               to               solidify               the               merger               on               a               successful               endeavor.
               Growth               opportunities               without               lost               of               either               company               or               minimization               of               risk               factors               (Ross,               2005).
               Identifying               financing               needs               for               wealth               maximization               while               continuing               to               decrease               the               risk               and               increasing               the               tax               deductions               (Ross,               2007).
               Risk               associated               with               mergers               and               decreased               net               working               capital               saving               cash               on               hand               through               alternative               methods               and               budget               constraints               (Ross,               2007               Ch               7               &               8).
               Describing               the               impact               of               financial               and               global               environments               on               wealth               maximization               using               what               is               available               to               increase               profitability               (Ross,               2005).
               Applying               wealth               maximization               in               merger               techniques               and               industry               valuation               methodologies               (Ross,               2005               ch               29).
               Assessing               financing               needs               for               wealth               maximization               (Ross,               2007               ch               3).
               Incremental               cash               flows               reducing               cost               of               capital               financial               planning               model               (Ross,               2007               ch               3).
               Analyzing               risk,               sources               of               synergy               from               acquisitions               (Ross,               2007               ch               29).
               Table               2               -               Stakeholder               Perspectives
               Stakeholder               Perspectives
               Stakeholder               Groups
               The               Interests,               Rights,               and
               Values               of               Each               Group
               Mr.

John               Lin,               CEO               and               founder               of               Shang-wa               Electronics               (SWE)
               Global               expansion               along               with               an               expert               management               team               that               will               allow               him               to               take               time               off               to               spend               with               family               and               eventually               get               out               of               the               business               all               together.
               Mr.

Bernard               Lester,               CEO               and               founder               of               Lester               Electronics               Inc.

(LEI)
               Maintain               the               exclusive               agreement               with               SWE               of               purchasing               annually               a               minimum               of               $1               million               worth               of               capacitors               to               sell               in               the               United               States.

Also               LEI               would               like               to               market               domestic               made               parts               internationally.
               Mr.

David               Antoine,               CEO               of               Transactional               Electronics               Corporation
               After               several               mergers               and               acquisitions               TEC               would               like               to               expand               globally.

The               acquisition               of               SWE               would               make               this               possible               and               would               eliminate               some               of               their               competition               in               the               process.
               Peter               Zack,               Managing               Director,               Silver               Socks               Company
               Often               referred               to               as               someone               who               makes               deals               happened,               works               for               an               Investment               Banking               firm               on               Wall               Street.

Peter               Zack               was               the               college               roommate               of               Robert               Paget,               the               vice               president               of               Acquisitions               for               Avral.

Mr.

Zack               is               currently               representing               Avral               Electronics               in               a               quest               to               acquire               LEI.
               Robert               Paget,               Vice               President               of               Acquisitions,               Avral               Electronics
               Known               as               an               aggressive               "go               getter",               has               been               with               Avral               Electronics               for               five               years.

During               this               time               Mr.

Paget               has               negotiated               and               purchased               six               noteworthy               electronics               companies.

These               acquisitions               have               increased               Avral's               external               annual               revenue               from               $300               million               to               $900               million.

As               a               result               of               his               hard               work               and               contributions               to               Avral,               he               was               recently               promoted               to               Vice               President               of               Acquisitions.

If               this               acquisition               of               LEI               goes               through               it               would               greatly               enhance               Mr.

Paget's               resume'.
               Table               4-               Risk               Assessment               and               Mitigation               Techniques
               Risk               Assessment               and               Mitigation               Techniques
               Alternative               Solution
               Risks               and               Probability
               Consequence               and               Severity
               Mitigation               Techniques
               Partnership
               ·               Greater               personal               liability
               ·               It               is               difficult               for               a               partnership               to               raise               large               amounts               of               cash.
               ·               Dissolution               of               partnership               may               be               difficult
               ·               Legal               obligation
               ·               Liable               for               debts
               ·               Articles               of               Partnership
               ·               Arbitration
               Restructuring               through               diversifying
               ·               Unsystematic               risk
               ·               Systematic               Risk
               ·               Includes               strikes,               natural               disasters,               fires               or               sluggish               sales.
               ·               Diversify
               Creating               a               global               business
               ·               Transaction               Exposure
               ·               Translational               Exposure
               ·               Economic               Exposure
               ·               The               rate               of               exchange               in               which               cash               payments               result               in               a               different               rate               of               exchange.
               ·               The               net               worth               of               a               company               changing               because               of               fluctuating               of               assets/liabilities               where               the               foreign               currencies               are               dominates.
               ·               When               the               present               value               of               future               cash               flows               has               been               affected               due               exchange               rate               movements.
               ·               Hedging
               Table               5               -               Optimal               Solution               Implementation               Plan
               Deliverable
               Timeline
               Who               is               Responsible
               Lester               Electronics,               Inc.

(LEI)               will               develop               an               implementation               plan               to               merge               with               Shang-wa               Electronics               (SWE).
               3               months
               Bernard               Lester,               CEO               of               LEI,               Anne               Lorale,               CFO               of               LEI,               John               Snow               and               the               Board               of               Director's               for               LEI,               John               Lin,               CEO               of               SWE               and               his               Board               of               Director's.
               LEI               and               SWE               will               lease               the               building               and               capital               necessary               to               open               the               Asia               capacitor               manufacturing               plant.
               3               to               6               months
               Bernard               Lester,               CEO               of               LEI,               Anne               Lorale,               CFO               of               LEI,               John               Lin,               CEO               of               SWE.
               LEI               and               SWE               will               set               inventory               turn               rates               in               the               new               Asia               manufacturing               plant               using               the               inventory               turnover               ratio               to               reduce               debt               and               move               products               timely.
               9               months
               Anne               Lorale,               CFO               of               LEI,               and               the               plant               manager.
               LEI               and               SWE               will               determine               company               dividend               payouts               to               pay               shareholders.
               12               months
               Anne               Lorale,               CFO               of               LEI.
               LEI               and               SWE               will               open               a               new               capacitor               manufacturing               plant               in               Asia               to               meet               growing               demand.
               12               months
               Bernard               Lester,               CEO               of               LEI,               John               Lin,               CEO               of               SWE,               and               a               real               estate               company.
               LEI               and               SWE               will               reduce               their               debt-ratios               to               produce               consistent               earnings               to               shareholders               and               reduce               interest               expenses.
               24               months
               Anne               Lorale,               CFO               of               LEI.
               Table               6               -               End               State               Goals
               End-State               Goals
               Metrics
               Target
               Lester               Electronics,               Inc               (LEI)               will               preserve               their               competitiveness               in               the               market               with               the               Shang-wa               Electronics               (SWE)               merger
               Percent               of               market               share               held               by               LEI
               Obtain               15%               of               the               Market               Share               in               Asia               and               20%               in               the               US               within               the               next               5               years.
               LEI               will               sustain               their               longevity               with               the               SWE               merger
               Years               in               business               after               the               merger
               To               still               be               in               business               in               the               years               following               the               merger.
               LEI               will               ensure               the               supply               of               capacitors
               Number               of               capacitators               supplied
               The               same               number               or               more               capacitators               supplied               after               the               merger               as               before               the               merger.
               LEI               will               keep               stock               prices               from               falling               drastically
               Price               of               Stock
               Stocks               will               drop               less               than               10%               in               the               year               following               the               merger.
               LEI               will               venture               into               other               markets
               Number               of               Markets               entered               after               the               merger
               Enter               into               at               least               2               new               markets               in               the               next               5               years
               LEI               will               ensure               that               their               finances               will               remain               stable
               Debt/Equity               Ratio
               A               debt               to               equity               ratio               that               is               1               or               lower.






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debt ratio total liabilities total assets
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debt ratio total liabilities total assets
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debt ratio total liabilities total assets
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debt ratio total liabilities total assets
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