Long-Term Investment Decisions

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LONG-TERM INVESTMENT DECISIONS 9

Long-TermInvestment Decisions

Low-caloriefoods have become an alternative for different companies as they tryto provide healthy options. Emanating from the competition that mayexist in the market, organizations that deal with the healthy foodshave to come up with strategies that would ensure they remainaggressive (Khan, 2012). For instance, pricing may be a strongconsideration since it may drive customers towards purchasing thecommodities however, it is critical for an entity to use cost-savingalternatives in offering competitive prices. This report woulddiscuss a plan that managers in the low-calorie food company shouldfollow in considering a rise in price, and effects of governmentpolicies on production and employment. Besides, it will explorewhether government regulations would ensure fairness, complexitiesunder expansion through capital projects, and how the company cancreate a convergence amid stakeholders’ and managers’ interests.

Outlinea plan that managers in the low-calorie, frozen microwaveable foodcompany could follow in anticipation of raising prices when selectingpricing strategies for making their products response to a change inprice less elastic. Provide a rationale for your response.

Thecompany anticipates keeping the prices of its commodities inelastic.From this reasoning, the pricing strategy that is to be used by theorganization would have no impact on the manner buyers perceive andpurchase the products. In making its commodities inelastic, thecompany would need to follow some strategies. One of the approachesincludes developing a cost-based plan. The tactic may focus onlow-cost operations, distribution, and marketing. This would help toreduce the increasing costs (Heath, 2013). The firm should alsocreate focus strategies these approaches would assist in offeringspecialized commodities to a market segment, which would give thebusiness an opportunity to increase the price of its goods.Furthermore, the entity may also use a differentiation tactic whereit can add new attributes to the merchandise depending on the needsof consumers. The additional features on the goods would provide thecompany with the opportunity of hiking the price. Moreover, thedifferentiation strategy would help in distinguishing the merchandisefrom other inelastic commodities (Heath, 2013).

Examinethe major effects that government policies have on production andemployment. Predict the potential effects that government policiescould have on your company.

Thegovernment plays a critical role in regulating the manner in whichcompanies conduct business, and how production and employment areimpacted. Sometimes, the government may desire to control theproduction of a given commodity that has negative externalities. Insuch a scenario, it would be involved in the development of policiesthat would decrease or eliminate the generation of the merchandise(Sharp, 2012). For instance, the government may consider increasingthe tax on the production of the commodity a move that would affectthe quantity of the good generated. Alternatively, the government maydesire to promote the production of a product that has positiveexternalities. In such a circumstance, the government would beinvolved in creating policies that are geared towards increasing theproduction of the good. For example, it may reduce the tax or apply asubsidy for the manufacturing of the merchandise in order to augmentthe generation of the commodity.

Theproduction level has an impact on the degree of employment. Thus, thegovernment can influence the jobs in the economy through creatingpolicies that determine the production echelon. When the governmentwants to increase the job levels, it will develop rules that favorthe production of commodities that have positive impacts on thesociety (Hitt et al., 2016). Therefore, the government policies canbe indicated to influence the levels of employment and production.

Thegovernment policies are likely to have both positive and adverseeffects on the company. One of the constructive effects would be thatin case the government considers a decrease in tax, the company wouldincrease its profits since there would be a reduction of levy paid.Also, public policy may favor the production of low-calorie foodthrough eliminating a tax on the raw materials (Heath, 2013). Thiswould help in mitigating the outlay of manufacturing the foodproducts, which would be beneficial to the business. Alternatively,in an attempt to protect the consumer, the government may come upwith a policy that would prevent the company from increasing theprice beyond a certain point. This may adversely affect the firmsince the production cost may not be recoverable from the price rangeprovided. Furthermore, the rules of exchange established by thegovernment may not be favorable to the organization.

.Determinewhether or not government regulation to ensure fairness in thelow-calorie, frozen microwavable food industry, is needed. Cite themajor reasons for government involvement in a market economy. Providetwo (2) examples of government involvement in a similar marketeconomy to support your response.

Governmentplays a crucial role in industries, where it ensures that there isfairness (Sharp, 2012). I think government regulation is required inthe low-calorie food industry to ensure fairness. One of the reasonswhy the government may be involved in the industry is because itwould be necessary to provide the price attached to the commoditiesis not discriminatory. In this case, the government would be involvedin making sure that consumers pay a value that is worth for theproducts that they receive. In such a scenario, the government mayprovide a price range over which firms in the industry must not gobeyond. Another reason why the government may be involved in ensuringfairness in the low-calorie food industry is because there may befirms that may provide low-quality food items. In this case, thegovernment regulation would ensure that the commodities produced bythe enterprises in the industry are fit for human consumption andhave attained the required quality.

Thepurpose of the government intervention in a market economy is toensure that there is the provision of private and public goods,exploitation is eliminated, market imperfections are removed, andconsumers are not exploited through being presented with substandardcommodities and high prices. Thus, the primary purpose of governmentintervention is to control the economy and ensure efficiencies in themarket (Mazzucato, 2014).

Anexample of government involvement in a market is when there is a needto protect consumers from unfair business practices such as thecoming together of cartels in order to hike prices. For a naturalmonopoly, the government may be involved in the regulation of theprice of commodities. Another example is where firms in the industryproduce detrimental effects to the surrounding such as polluting theenvironment. The government has to intervene so as to prevent thecompanies from extending the negative externality (Sharp, 2012).

Examinethe major complexities that would arise under expansion via capitalprojects. Propose key actions that the company could take in order toprevent or address these complexities.

Afirm may choose to expand either through current expenditures orcapital investment projects (Finkbeiner, 2011). Capital projects arerelatively large and take a lot of time before benefits are received.One of the difficulties, when the company opts to enlarge via capitalprojects, would be the funding. Capital projects require massiveexpenditures, and the manner in which the resources would be raisedmay be a struggle. This emanates from the differences amid theshareholders and managers concerning the best way forward to obtainresources that would run the projects. The indecisiveness may presenta problem in the running of the capital projects resulting in theirfailure (Rolstadåset al., 2011). Another complication that may emerge by the companyopting to expand via capital projects would be an unfavorable rate ofperformance. The rate of return that guides the capital projects maybe damaging in the long-run, which may lead to the company makingvast losses. For instance, the rate of return set for two years maychange after the period without the organization reaping profits fromthe capital projects. Furthermore, since the capital projects arebased on long-term periods, there may be economic turn-downs that maymake the projects not profitable in the long-run. This may makedifferent stakeholders undecided on the best time to run the capitalprojects.

Oneof the ways of handling the complexities would include the companydoing an investment analysis of the benefits that would accrue fromthe capital investments. This would aid the business to assess therisks involved in the projects and whether they would realize gains.Once the business has done the analysis, it should then seek theopinion of all its stakeholders. The involvement of the variousinterested parties in the decision-making process concerning thecapital projects would provide the entity with the best alternativeto consider as part of the investment process (Rolstadåset al., 2011). In addition, the organization should insure itscapital projects so as to avoid losing everything in case ofunfavorable situations.

Suggestthe substantive manner in which the company could create aconvergence between the interests of stockholders and managers.Indicate the most likely impact to profitability of such aconvergence. Provide two (2) examples of instances that support yourresponse. Increating a convergence amid the interests of managers andstockholders, three forces would be necessary, and they includefinancial commitment, organizational integration, and strategicdecision makers (managers and directors). Despite stockholders beingthe owners of a company, they have restricted control over the actsof administrators (Finkbeiner, 2011). The conflict between managersand stockholders emerges when both parties desire to maximize theirindividual benefits. For instance, managers have an interest inmaximizing their incomes and allowances while shareholders have aconcern in maximizing their profits. The difference in theexpectations is likely to bring divergence in the making ofdecisions. Thus, there is a need for convergence. The point ofmeeting amid the interests of the managers and shareholders can beachieved through financial transparency. When there is no ambiguitycreated in the financial reports of a company, there is a convergenceamid the two parties because none is expected to lose (Finkbeiner,2011). For instance, when external auditors verify the accuracy ofthe financial reports, the two sides would have converging concerns.Also, another case is where all the incomes of a company becomedisclosed as required.

Convergencebetween the interests of managers and those of the shareholders islikely to have a substantial impact on the profitability of acompany. When there is a convergence, the gains of an organizationwould increase because the resources that would have been used inestablishing whether one party is being cheated or not would beintegrated as part of a company’s earnings (Finkbeiner, 2011).Also, when there is a union amid the interests of the two parties, itwould be possible to make fast investment decisions, which wouldnecessitate making of any profits that would have delayed.

Inconclusion, the government performs a substantial role in regulatingthe manner in which companies conduct business, and how productionand work are impacted. The production level has an effect on thedegree of employment. Thus, the government can influence the jobs inthe economy through creating policies that determine the productionechelon. Government plays a crucial role in industries, where itensures that there is fairness. The primary purpose of governmentintervention is to control the economy and provide efficiencies inthe market.

References

Finkbeiner,M. (2011). Towardslife cycle sustainability management.Dordrecht: Springer.

Heath,J. A. (2013). Microeconomics.New York: Facts on File.

Hitt,M. A., Ireland, R. D., &amp Hoskisson, R. E. (2016). StrategicManagement: Competitiveness &amp Globalization.Boston, MA, USA: Cengage Learning.

Khan,R. (2012). Low-CalorieFoods and Food Ingredients.Boston, MA: Springer US.

Mazzucato,M. (2014). Theentrepreneurial state: Debunking public vs. private sector myths.New York: Anthem Press.

Rolstadås,A., Hetland, P. W., Jergeas, G. F. &amp Westney, R. E. (2011). Risknavigation strategies for major capital projects: Beyond the myth ofpredictability.New York: Springer.

Sharp,E. B. (2012). Doeslocal government matter? How urban policies shape civic engagement.Minneapolis: University of Minnesota Press.

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