Long-term Investment Decision

Long-term Investment Decision
Long-term Investment Decision

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Long-term Investment Decision

From the previous assignments, it was determined that the demand for low-calorie microwavable food is inelastic. The market for the product is also competitive meaning that the price of the commodity fluctuates from time to time. Therefore, the price of the low-calorie microwavable food can be made less responsive to market fluctuations or less price elastic in two ways. First of all is by making the product become more of a mass product that niche.

Secondly is to make its market rigid so that the clients for the product will have no alternative. This is because the customers will find no substitutes for the commodity and thus stick to it regardless of fluctuations (Brigham & Ehrhardt, 2013). The low-calorie microwavable food is healthy and convenient. To emphasize on these two main aspects, it is imperative to market and advertise the product with no close substitute by the two key attributes.

Government policies have both positive and negative impact on production and employment in the market. Governments always put in place rules and regulations that guide the way business is done in the market (Mason & Brown, 2013). These policies have an influence on profitability and competitiveness of business enterprises. Government policies act as market catalysts by changing the social behavior in the business environment.

By exempting some companies or particular sector in the economy from tax and duty, the government will be able to trigger investment and generate growth. On the same note, government policy helps to create political stability and hence promote local businesses as well as attract foreign investors.

Long-term Investment Decision

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Government spending also has an effect on businesses, increased spending result in increased taxes that might discourage investment. Similarly, the government can influence the interest rates. An augment in interest rates add to the cost of borrowing. Therefore, it will discourage business because the entrepreneurs and business enterprises will not be in a position to obtain enough capital at a low price (Tricker, 2015). Low-interest rates, on the other hand, encourage investment.

Trade regulations also have an impact on business activities. Regulations such as the requirement for permits, federal minimum wage among others affect business practices. However, fair and effective regulation tends to promote business growth.

In our case, the government policies help to ensure that there is fairness in the microwavable food industry. Government involvement in the low-calorie, frozen microwavable food industry has led to fairness in the following ways.

Fair Competition: Government involvement in the industry has let to fair competition among the key players in the industries. Some firms often use unfair competitive strategies that may be of harm to other key players in the industry. For instance, use in predatory pricing strategies where firms set low prices to attract more customers and drive out other competitors who do not enjoy the economies of scale.

Large companies with high economies of scale can maintain low prices while small and medium-sized firms may not be in a position to maintain such low prices without incurring losses. Therefore, such small companies may end up quitting the market making the remaining large corporations enjoy monopoly power. As such, these strategies are unfair to small companies and thus the government comes in to regulate prices and protect small infant firms.

Long-term Investment Decision

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Minimization of corruption through regulations: Government regulations often prohibit firms from taking advantage of their positions to ask for special treatment that can lead to their success in certain commerce or market economy. For example, some firms may bribe auditors to avoid scrutiny. Such practices are often illegal and unethical and result in unequal distribution of resources.

Undue advantage by some firms in the industry: Firms that are large and powerful often manipulate individual to gain favors at the expense of other firms. It is the requirement of the government to come up with regulations and rules that will ensure that there is an equal distribution of resources in the industry. The government should intervene and prosecute firms that take advantage of their position to make companies avoid such behavior. Therefore, it will enable companies in the low-calorie, frozen microwavable food to embrace legal and fair strategies that may not end up being unfair.

Therefore, government regulations have enabled the low-calorie, frozen microwavable food firm to enjoy fairness. Government regulations have enabled the company to have an equal opportunity of achieving tremendous success as long as it is in a position to develop legal and effective business strategies.

Similarly, government involvement in the industry helps to shield consumers from exploitation.  It is the responsibility of the customer to ensure that products and services available to consumers are safe for consumption. In the same way, government develops rules that help ensure market efficiency and govern international trade.

Long-term Investment Decision

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Some of the major complexities that would arise under expansion via capital projects include:

Uncertainty: The process of capital budgeting is primarily based on future cash flow estimates. However, in the real situation, there are some uncertainties that can make a project fail. Capital budgeting analysis also utilizes multi-period model which lay down costs and benefits of more than one year. During this period, the cost or benefits factor may drastically change. Therefore, use of estimates and uncertainty, realities may result in complexities in capital budgeting (Kardes et al., 2013).

Discount factor: The process of capital budgeting is time-weighted. The future cash flow is often discounted using the present time discount rate. It is also difficult to choose a discount rate. Each project assumes a unique risk associated with itself making it difficult to approximate a discount rate for a project

Indivisibility: It is hard to divide a project. Therefore, a project must be taken up either in entirely or not at all.

Evaluation is also a big challenge: There are different techniques that are used such as discounted techniques and non-discounted technique, when evaluation techniques conflict, business acumen, and manager’s prudence takes over the capital budgeting decision (Healy & Palepu, 2012).

In the case of low-calorie, frozen microwavable food company the big issue is the agency problem. This problem is because of the conflict of interest between the managers and the stockholders. Therefore, the microwavable food company can take the following steps to help bring convergence between the firm’s managers and stockholders.

First of all, the firm should align some part of the compensation package to the sales and profitability growth of the firm. Similarly, the firm should plan for stock options with the requisite T & C and provide it to the management to make them feel that they are part of the company (Grant, 2015). This way, the managers will be able to think for the betterment of the firm. Finally, the firm should develop a profit sharing plan that is linked to the performance of the managers.

Long-term Investment Decision

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By employing the above strategies, the firm will be able to motivate managers to work towards achieving the organization goals (Tricker, 2015). This is because the managers will begin perceiving their owned align with organization goals. Due to their hard work the firm will achieve growth in profitability, sales and profitability of the company. Increased sales will result in an increase in the compensation of managers. On the same note, it will increase the share price of the low-calorie, frozen microwavable food company. Therefore, both the managers and stockholders will mutually benefit.

The name of the firm should not be used as an initiative of converging manager’s interest with those of the stockholders. The reason is that such strategy may result in copyright related issues. Be as it may, an organization with good HR practices can align the interest of managers, employees, and the stockholders. Performance management linked and motivation strategies such as bonus payment will also helps to converge the manager’s interest with those of the stockholders.

In conclusion, the low-calorie microwavable food can make its commodity less price elastic by making the product more of a mass product and making its market rigid. The government, on the other hand, helps in the regulation of the industry to ensure fairness in the low-calorie, frozen microwavable food industry (Mason & Brown, 2013).

When it comes to capital expansion, firms face complexities because of uncertainty, discount factor, abandonment options, indivisibility and conflict between evaluation techniques. Finally, the low-calorie, the microwavable food company can converge the company managers and stockholders interest by making the managers feel like they are part of the company and linking compensation schemes with the performance of the managers.

Long-term Investment Decision

References

Mason, C., & Brown, R. (2013). Creating good public policy to support high-growth firms. Small Business Economics40(2), 211-225.

Kardes, I., Ozturk, A., Cavusgil, S. T., & Cavusgil, E. (2013). Managing global megaprojects: Complexity and risk management. International Business Review22(6), 905-917.

Healy, P., & Palepu, K. (2012). Business Analysis Valuation: Using Financial Statements. Cengage Learning.

Grant, R. M. (2015). Contemporary Strategy Analysis 9e Text Only. John Wiley & Sons.

Tricker, R. B. (2015). Corporate governance: Principles, policies, and practices. OUP Oxford.

Brigham, E., & Ehrhardt, M. (2013). Financial management: Theory & practice. Cengage Learning.

Long-term Investment Decision

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