Long Term Investment - Essay Example

Long term Investment Abstract: The company I chose in assignment No. 3 was Samsung. I assume that this company wanted to expand in order to become more competitive. Since the company aims for expansion, merger is the most recommendable economic move. Based upon economic research it has been observed that Security, time and industry are not deal detailed scenarios when trying to determine the factor for acquisition related security (Chatterji & Kuenzi, 2001). So they are starting looking closely to another competitive company for merging. But for this expansion the selected company has to make some capital budgeting decisions. Merger is not an easy to do activity and involves incorporation of two big organizations. A company could decide for merge because of many reasons, like provide capacity utilization, to gain economies of scale, to gain access to new suppliers, distributers, customers, products etc. although merger is not always helpful to the society (Kaplan, 2006). Merger sometimes reduces competition and the most cited fact known by all is that consumers are always hard to attract in competitive environment (Saari, 2007). Mergers can often result in a great number of social benefits. They also can produce economies that can reduce cost, improve quality, and increase output. 1. Explain why government regulation is or is not needed, citing the major reasons for government involvement in a market economy. Provide support for your explanation. The Samsung Company is trying to expand and gain dominance, but there are certain regulations that the company has to follow so as to ensure zero breach of law against the regulations settled by the government. The rules and regulations set by the government for merger policy are strict enough to ensure that the merger proves beneficial for the society. The regulations are set by the government on the basis that the merging companies eliminate the competition between them (Saari, 2007). Merger can be for the competitive reasons or for an attempt by the large firms to create enough activity and exercise higher power in the industry (Chatterji & Kuenzi, 2001). To determine the industry sensitivity government actually encourages mergers. The role of government in market economy is very important. The current economic situation did not come out thin air, rather, it is because of the growth of incorrect policies and most of the time because of lack of effective policies by the main entities that mainly empower manages of the economy. If the government fails to perform its functions than negative consequences might be expected. Major reasons for government involvement in a market economy: The following are some of the major reasons for government involvement in a market economy system. Provide economy with legal structure: This is one of the most important functions a government needs practice. In order to perform this function, the government needs to furnish economy with regulations, legislations and mean that ensure product quality. Maintaining competition: Government involvement is another important requirement in order to maintain competition. Government needs to fight monopoly power and non-competitive behavior. Thus anti-monopoly laws are designed to regulate business behavior and promote completion. Redistribution of income: The government needs to design relief programs for poor, handicapped and unemployed lot. This could be a good support for poor people and this program can help in transferring income from high income groups to these limited income people. Stipulation of public goods: When all the market fails to promote the basis and the needed goods the government fills in the space. Promoting growth and stability: The government should promote macroeconomic growth and stability through changes in fiscal and monetary policies. 2. Justify the rationale for the intervention of government in the market process in the U.S. It is essentially important for all companies and organizations to be informed about the required government and legal regulatory authorities’ involvement in merger or expansion works. There is a wide-range of requirement that authorizes the government to interfere in any action that could lead towards a merger. This is beneficial for the all the organization that are involved because if any mishaps occur the government could take legal actions against the organization involved. There are also specific laws in the case of an international merger. There are certain tax and trading policies that should be practiced in order to regulate as well as help make a smooth transition. This is also done in order to make sure the system is united so that all the beneficiaries will consistently follow the same policies, procedures and regulations. One of the most comprehensive processes associated with mergers and in the United States is the market processes. This is why the government has a motive for focal point on mergers of the market processes. The government also interferes to regulate the resources and allocate the right amount of the resources for the betterment in the economic and social welfare scenario. The government’s ambition is to improve and correct the failures that have been taking place all over the market, and to distribute the resources and the income equally in the market place among different levels. The government also intercedes in the market process with the intention to improve and enhance the performance of the economy (Kaplan, 2006). 3. Assume that the company’s is considering a merger. The possible merger currently faces some threats and that the industry decides on self-expansion as an alternative strategy, describe the additional complexities that would arise under this new scenario of expansion via capital projects. The budgeting process needs the participation of different sections in the commerce. Complexity of planning for capital investments often leads to many persons be involved in and outside of the company. Information about marketing, science, engineering, regulation, taxation, finance, production, and behavioral matters should be methodically collected and estimated. The process of making capital decisions directly refers to the volume and difficulty of the project. What is the real require for your products or services? Complexities regarding expansion via capital projects: In order to make the capital decision for self-expansion Company may face the some complexities. And they have to keep in mind the following point. What approximate amount of capital you need to develop in order to provide successful meeting of requirement? How many supplementary personnel will be required and when should they be employed most excellent? What's the finest variant stage in the expansion so cash flow not to be negotiated? Where will expanding capacity diminish the cost of sales? How will changing competitor activity affect your business over the several years? 4. Analyze how the different forces will come together to create a convergence between the interests of stockholders and managers indicating the most likely impact profitability. Provide support for your response. The agency relationship between shareholders and managers has agency conflicts, or conflicts of interest between stockholders and managers because the shareholders assets are maximized by investing in projects with positive net present values, and managers may be more interested in short term payback. One way of dealing with shareholder-manager conflicts is that managers are compensated on the basis of changes of the value of the business. The other method of dealing with the problem is shareholders monitoring every managerial action. The most sympathetic solution deceit between the managers and the stockholders is uniform interest; maximization of profit (Chatterji & Kuenzi, 2001). One way to reduce conflict is the board members for their work that they will make every effort to promote and protect investor interest. In contrast to this shareholders also pay compensation to the managers so the conflicts between them can be removed. References Kuenzi , A., & Chatterjee, R. (2001, June). Mergers And Acquisitions: The Influence Of Methods Of Payment On Bidder’s Share Price. Retrieved from http://www.jbs.cam.ac.uk/research/working_papers/2001/wp0106.pdf Saari, R. (2007). Management motives for companies mergers and acquisitions.A research proposal to be presented at Accounting tutorial Turku School of Economics, University of Lapland, Faculty of Bussiness and Tourism. Kaplan, S. N. (2006). Mergers and acquisitions: A financial economics perspective. Prepared for the Antitrust Modernization Commission Economist’s Roundtable on Merger Enforcement. . Read More