Weighted Average Cost Of Capital
Weighted Average Cost of Capital
Both Lester and Shang-wa have used different financial strategies to manage their capital in the past. Now they will need to work together to consolidate overall leverage as it might be increased to meet the cash flows of the consolidated firm. Weighted average cost of capital is one of the tools that could be used to evaluate the debt to equity mix and devise the optimal capital structure of the consolidated firm.
Lester's proforma income statement post merger shows a negative Net Income. The possibility of Lester having to incur some portion of debt equity to finance the transition phase during the merger is likely. Lester would naturally want to review the Weighted Average Cost of Capital (WACC) since they are currently using equity to finance the merger and will probably have added debt. Lester Electronics hopes to be as successful in their endeavors as other mergers benchmarked such as US Office Furniture. US Office Furniture practiced......
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