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Bernard Lesters Electronics Gap Analysis

2620 words - 11 pages

Bernard Lester ScenarioLester Electronics, Inc., a distribution company in the United States, and has a contract with Shang-wa Electronics, a Korean manufacturer of capacitors. Under the contract, which must be renewed annually, Shang-wa granted Lester the exclusive right to sell capacitors in the United States for 65 years, as long as Lester maintained a minimum annual purchase of $1 million wholesale; as result, Shang-wa is Lester's primary supplier of capacitors for the U.S. market. In exchange, Shang-wa cannot knowingly sell its capacitors to anyone intending to market to U.S. buyers. Lester added additional components to its product line. Shang-wa's capacitors are well known in the U.S. ...view middle of the document...

A perfect sales forecast is not possible, because sales depend on the future and this could be extremely uncertain. What is the state of the economy? In order to have assistance the firms should go to the appropriate businesses specializing in macroeconomics and the industries projections. A good forecast should identify all valuable investment opportunities (Westerfield, 2004). Each company should look at pro forma statements, these statements should be made up of the balance sheet, and income statement and the sources and uses statement. An assessment requirement will describe the projected capital spending. This statement will also discuss the potential use of net working capital.The financial requirements will discuss the dividend policy and debt policy. With this portion of the plan the Lester's and Shang-wa must discuss what types of securities will be sold and what methods are most important. The economic assumptions must be explicit in the state of the economic environment and what they will reside in over the life of the plan.Determining Growth for the two CompaniesIn order for these two companies to determine there growth potential they must always look at the conditions that will assist the company at growth which are as follows: theassumption would be that the assets will grow in proportion to the sales, the next is that the net income is a constant proportion of their sales, the third is that the firm has a given dividend-payout policy and a given debt-equity ratio and the final assumption is that the firm will not change the outstanding shares of stock. There is actually only one rate that is always consistent with the other assumptions and that is a change in assets equals a change in debt plus a change in equity (Westerfield, 2004).Stakeholder Perspectives/Ethical DilemmasCost of financial distressIf Lester's Electronics does not go through a merger with Shang-wa they stand to lose 43% of there revenue over the next five years. That is if Transnational completes the hostile takeover that has been discussed. By not completing the merger it could mean financial distress.Financial distress would have some direct cost which will include legal and administrative cost this does not include the cost of expert witnesses that could easily go over the cost of the lawyers and the accountants. There is also the potential of lost customers and suppliers. Sales are frequently lost due to both fear and loss of trust. These companies have worked long and hard to build the trust and confidence of their customers.Agency CostsIf Lester's and Shang-wa do not go through with this merger the firms could increase the debt of the company, which in turn could cause a conflict of interest between the stockholders and bondholders. There are three kinds of selfish strategies; the first is the selfish investment strategy. This strategy is also considered the incentive to take large risks. That is a firm takes great chances, because they believe that they are...

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