Problem Solution: Lester Electronics
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Problem Solution: Lester Electronics
Lester Electronics (LEI) is a consumer and electronics parts master distributor that markets its products to original eq
Situation Analysis
Issue and Opportunity Identification
The first issue, Lester’s financial managers should evaluate their cash flows to see if they have the money to either buy Shang-wa using the equity that they already have or to finance the purchase with debt. During this evaluation, Lester should evaluate the timing of the cash flows. If Lester decides to purchase Shang-wa using any debt, the financial managers will have to ensure that the timing of the cash flow is such that Lester is able to make the principal and interest payments on the debt (Ross, 2005). If this evaluation is completed successfully, then Lester should be able to increase in financial standing within the industry.
Second, LEI is facing will be to determine a financial structure and a financing plan to complete the merger with Shang-wa. “Managers should choose the capital structure that they believe will have the highest firm value, because this capital structure will be the most beneficial to the firm’s stockholders” (Ross, 2005). If Lester can choose and implement a financial structure that will benefit their stockholders and add value to the firm, then they will have the opportunity to grow as a company, take on new endeavors, and continue their relationship with Shang-wa.
Third issue that Lester will be facing is to reduce the risk to the stockholders. A merge with another company is full of risks and many times investors are adverse to risk. By mitigating the risks associated with the merger, LEI has the opportunity to increase the shareholder’s wealth and the company’s overall value (Ross, 2005).
Stakeholder Perspectives/Ethical Dilemmas
Within the Scenario, there are 3 major stakeholders; each company’s shareholders, the employees and customers, and both Mr. Lin and Mr. Lester. All shareholders have the right to expect returns on their investments. LEI are publicly traded and must report all earnings and investment activities to the SEC in order publicly publish the information. As with any investment, the earnings per share ratio are the most watched ratio of all.
Next stakeholder group would be the company’s employees and customers. This group is the largest of all stakeholder groups. The employees of both companies’ have the right to expect equitable treatment throughout the merger process. Both Lester and Shang-Wa must ensure that all employees are either guaranteed positions at the new firm, or at minimum given a fair severance package.
The last group, Mr. Lin and Mr. Lester each have ethical responsibilities to each stakeholder group as well as to themselves and to one another. Each owner should be able to expect fair treatment and full disclosure to one another throughout the merger process and in all future transactions and business matters. The two owners must be able to continue their relationship, both personal and professional, throughout the merger process as well as in their future business relationship as well.
Problem Statement
Forming a problem statement for Lester Electronics will be critical portion of Lester’s problem-solving method. The problem statement should be short, concise, and lend itself many solutions (University of Phoenix, 2007). The problem that Lester is facing is definitely worth solving as the company has much to gain from a successful merger with Shang-wa. For Lester Electronics, an appropriate problem statement would be: Lester Electronics can increase the value of their company and merge with Shang-wa by choosing an appropriate capital structure. Now that the problem statement has been formed, Lester’s end-state goals can be outlined.
End-State Vision
The large end-state goal that Lester would have is to form a successful