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Capital Budgeting can be looked upon as an appraisal of business investments. Lester Electronic Inc., has decided to undergo an acquisition of Shang-Wa electronics in order maximize its shareholders wealth. The success of LEI's investment decision is dependent upon their ability to define and mitigate possible financial risks involved with the decision.
The possible financial risks involved with acquiring Shang-Wa include asset quality problems, where one company may have a weak loan portfolio which can drain the financial health of the acquiring company. Accounting problems of the target company also present possible risks because the acquiring company may incur charges associated with restructuring and experience declines in intangible assets...
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