Lester Electronics Financing Alternative Benchmarking MBA 540 week 5

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Financing Alternative Benchmarking � PAGE \* MERGEFORMAT �1�

Financing Alternative Benchmarking

Cathy Billingslea

Lisa Chomko-Murphy

Jenna Moye'

Nitin Soni

Desirae Wisler

University of Phoenix


Financing Alternative Benchmarking

Merging Lester Electronics, Inc. (LEI) and Shang-wa Electronics requires financing options. Needs, such as investment financing, medium-term and long-term investment options, must be planned in accordance with the operations and needs of the stakeholders in both operations now. "These guidelines should include (1) an identification of the firm's financial goals, (2) an analysis of the differences between these goals and the current financial status of the firm, and (3) a statement of the actions needed for the firm to achieve its financial goals" (Ross, et al., 2005, p. 44). As LEI and Shang-wa management review each organization's current strategies, debt, cash flow, and stock options, a combined strategy must be created. Financing considerations should include the weighted average cost of capital, the financial mix which can optimize capital, investment risks, and dividend policies.

Weighted Average Cost of Capital (Cathy Billingslea)

The weighted-average cost of capital (WACC) is a formula that helps a company determine the amount spent on interest for all financial endeavors such as stockholder's equity and bonds. Each financing activity whether from debt or equity has a cost. The WACC formula helps a company, as well as creditors and investors, see how much each finance activity costs the company.

When companies are trying to determine or calculate the weighted average cost of capital for the use in capital budgeting, the notion is that the firm has set a specific target capital structure. However, this optimal capital structure may change over time which can affect the risk and cost of each type of capital and the weighted average cost of capital. A change in this cost of capital can affect the...