Long-Term Investment Decisions - Case Study Example

LONG TERM INVESTMENT DECISIONS

• Introduction

The paper discusses the long-term investment decisions in the Low-calorie, Frozen Microwaveable Food Company. The paper seeks to outline some of the plans that the managers could implement when setting up the pricing strategies in order to make their products respond to the changes in prices. Further discussion is also made on the effects the government policies have on both the employment and the production of a company. This entails, the potential implications the government policies have on the performance of a company. These government policies are important for any business because they ensure there is fairness in the industry. The paper also comes up with reasons as to why it is necessary for the government to intervene in the market economy. Unfortunately, under this framework, there are various complexities that might arise from this interventions especially in cases when there are major expansions through the capital projects (The Becker-Posner Blog, 2016). For this reason, the paper will discuss some of the substantive mitigation measures that a company would take in order to address such complexities. One of the reason is creating a convergence between the stockholders and the manager’s interest.

• Plan for Raising Prices

The managers need to follow a certain plan in the company when coming up with the pricing strategies that would make their product respond to the price elasticity.

• First, the company should do the Stock Keeping Unit Velocity analysis to find out which stock keeping unit accounts for many sales and inventory (Schindler, 2012). The company needs to focus on the price increases where the company would do better. Therefore, smaller changes in the high-velocity stock keeping unit will produce massive results compared to the larger change.
• Secondly, should examine some of the prices for the similar stock keeping unit among various segments which are commonly referred to as the Price Band analysis. The idea is discovering and focusing on the changes in prices among the segments without pulling their weight (Schindler, 2012).
• Thirdly, the firm also needs to focus their pricing strategy on the share of the wallet instead of focusing on the share of the market. The idea behind the plan is capturing more sales from the present market instead of attracting new clients.
• Lastly, the surcharge plan also needs to be implemented in order to cover some of the temporary cost as a result of extraordinary circumstance (Schindler, 2012). The fundamental prices will stay the same and the surcharge will be responsible for covering the increase in cost.
• Effects of Government Policies on Production and Employment

Government policies have a positive effect on the production and employment of Low-calories Frozen, Microwaveable Food Company (Lasky, 2010). The policies on the production are controlled by the trade regulations and the requirements for the licenses have an effect on the companies business. The policies on the employment are controlled by the minimum wage that the federal state has stated. For instance, the periodic health inspection needs to be done on the food companies (Lasky, 2010). The company might use a lot of money to stick to the regulations that sometimes might be unnecessary and very ineffective. However, when the policies on the production and employment are fair and effective, they are more likely to promote the growth of the company. Some of the government policies impose costs on companies. The costs are typically transferred to the client in form of increased prices. As a result, the consumers purchase less and at times stick to the alternative suppliers (Lasky, 2010). This is, in turn, leads to lower production, lower sales and can, therefore, lead to unemployment.

• Effects of Government Policies on the Business

As a market catalyst, the government might come up with policies that alter the social pattern in the business setting. For instance, the government might levy taxes on the carbon based fuel during food production and grant incentives to a company that uses renewable energy during production (Ladd and Oates, 1998). The policies can also underwrite technological innovations that bring forth the needed changes. Therefore, when a government imposes more taxes on the business, there is a high likelihood that the investors might lose interest in doing business with the company (The Becker-Posner Blog, 2016). Additionally, the government policies tend to rely on the political environment at the moment. The policies that are crafted in a stable country will have a different implication from the policies that are made in an unstable environment. A political system that is stable makes decisions that are business friendly that will attract both the foreign investors and also the domestic businesses (Ladd and Oates, 1998). Systems that are unstable tends to present challenges that ruin the ability of the country to maintain order (The Becker-Posner Blog, 2016). As a result, they have a negative implication on the business environment. Based on government spending, a government gets its money to spend from the taxes. When the government spends more money, it, therefore, means that I will need more money from either borrowing or by increasing the taxes. When the taxes are increased, people will be discouraged from investing (Ladd and Oates, 1998). Increased spending also limits the saving pool, therefore, leaving less money available for investment. When the private investment is shrunk, the production of goods and services will also reduce.

• Government Regulations and Fairness

The low-calorie, Frozen Microwavable Food Industry needs government regulations that are fair. The government regulations and policies need to be fair in the food industry in order to levels the playing field for all the industry players in both procedural justice and distributive justice. Distributive justice is needed in the food industry because allows the differences in income to exists to the level that they reward and acknowledge the company performance (Zajac, 1995). Fairness in the government regulation is also needed in order to accept the differential contribution of the company to the social and economic well-being of the company. Fairness in the government regulations will make sure that the government minimizes the social and economic harm that comes from the inequality and takes into consideration the consensus of the company within the food industry (Zajac, 1995). Fairness in the government policies and regulations will reduce the differences in income through progressive taxation and use the cash transfers like the unemployment insurance and pensions. Therefore to ensure fairness in the government policies and regulations, the government needs to fix the broken system within the food industry (Zajac, 1995). The government needs to fix the government policies that enable them to maintain fairness. Many times the corporations have taken part in coming up with regulations that regulate their business and they transfer that pressure to the policymakers in order to pass policies that will benefit their vested interest rather than consider the interest of the food market.

• Government Intervention in Market Economy

The reason as to why government intervenes in a market economy is to address some of the inefficiencies that go on within the market economy (The Becker-Posner Blog, 2016). It is the responsibility of the government to ensure that the market is efficient and that the resources are well allocated to those that need the resources. In an inefficient market economy, some of the companies may have so many resources while others will not have enough of them. Inefficiencies take various forms. For this reason, it is the mandate of the government to combat some of this inequities through the act of subsidies, through the act of taxation, and also through the act of regulations. The majority of the governments intervene in the market economy for purposes of maximizing the social welfare of all the industry players, for purpose of macro or micro economic factors (The Becker-Posner Blog, 2016). When the market is not regulated, cartels and other organizations can easily raise the entry cost or even limit the infrastructural development. Without the regulations, a company can easily come up with negative externalities without any dire implications. This, therefore, results in diminished resources and minimized trade. The government also minimizes the damages that are caused by the natural economic events such as inflations and recession. Under this case, the government intervenes the market economy by coming up with subsidies and through manipulating the supply of money through minimizing the harsh effect of the economic forces on the market players. The government might also intervene the market in order to promote fairness in the economy (The Becker-Posner Blog, 2016). Government normally come up with strategies through welfare programs and taxations in order to reallocate the financial resources from those perceived to be wealthy to those that are not.

An example of government intervention in the food industry is when the “New York City banned all the large-sized sugary drinks in restaurants” (The Becker-Posner Blog, 2016). The sugar level was banned from the sixteen or higher. The regulation states that the sugar level in drinks should be less than sixteen ounces (The Becker-Posner Blog, 2016). The ban is applicable in the broadway theaters, movie houses, and also fast food joints. The regulation did not cover those in supermarkets and those found in convenience stores. It should be noted that not all government interventions on food industry are negative.

• Complexities

Some of the complexities that are likely to arise include risk assessment and also Cost-Benefit analysis. The complex aspect surrounding the expansion is the desire to get more capital to expand. Therefore, the company will consider borrowing loans from financial institutions or in many cases they decide to dispose of some of their assets. None of the above-mentioned options are good to the investors (Ladd and Oates, 1998). The problem can well be solved through coming up with a business plan that would consider the interest of the shareholders through expansion. The company might also consider addressing some of the ways that would remove the redundancies in order to make sure that the business is a going concern.

• Interest of Stockholders and Managers

Stockholders and the manager have different interests for the company. In a conventional situation, the interest of the manager is not similar to the goals set by the stockholders. Unfortunately, this has not been the case (Baker and Powell, 2005). As a business, it is good to acknowledge the goals set by the managers and those set by the stockholders. By just acknowledging the different interest from the two sides will make the company come up with changes that would bring the goals of the two groups into alignment. The two instances are the principal and the agent issue (Baker and Powell, 2005). The interest can be converged by coming up with the information asymmetry that would ensure that the stockholders are no aware of what the managers are doing.