Long-Term Investment Decisions - Research Paper Example

Long-Term Investment Decisions Introduction When undertaking long-term investments it is crucial for one to plan and strategize on various issues in order to ensure that the investment will result in success. Considering such factors enables an investor to determine which sector of the market to invest where they are sure that they will have good returns on their investment (Northcott 1992). The factors mentioned above are categorised into external factors and internal factors. Internal factors are the factors that are influenced by the business establishment internally while external factors are factors that affect an investment where the business establishment has no control over. An example of such factors is government involvement. This paper will discuss various factors that affect the investment process specifically government’s intervention, and the various factors that should be considered when undertaking an investment. Why Government Regulation is or is not needed Normally, market structures and systems are formed by the various aspects of demand and supply. However, governments intervene in the market systems in various ways. Such ways include taxation, subsidies, allocation of rights, and rules and regulations among others. One reason why the United States of America government intervenes in the market economy is to ensure that there is free and fair competition. This, it does in various ways the notable one being putting various rules and regulation in the market economy. This is especially done to allow new business establishments entry into the market. Major corporations are known to merge or acquire other business establishment in order to ensure that they maintain their control over the market. This makes it had for small business establishments especially new ones to enter the market thus discouraging entrepreneurship which repels investments. Another reason why there is need for government intervention in the market economy is to ensure that indigenous companies and business establishments are safeguarded. This is especially the case when it comes to the farming industry where the United States of America government offers help to famers through subsidies and tax exemptions to farmers in order for them to compete with International Corporation, which have an advantage of the famers in terms of various factors such as availability of cheap labour. There is need for government’s intervention in the market economy when it comes to goods and services which are sensitive in nature. For example, the government must control the production, sale and buying of firearms and ammunition since this is an issue which is sensitive. Another sector that the government intervenes as a necessity due to sensitivity is the provision of public services such as health, water, education, security, and electricity. There is need of government intervention is such instances due to the fact that these are human needs that when left to the private-sector control they might lead to chaos due to various factors. Finally yet importantly, the government intervenes in a market economy to ensure that it has access to enough revenue to meet the country's needs. This is usually done through taxation where the government influences the market economy in order to generate its revenue. Rationale for the Intervention of Government in the Market Process in the U.S The need for government intervention in economy markets in the United States of America provides the rational for the government’s involvement in the market process in the country. Firstly, the fact that government intervention in the market process in the United States of America results in social equity is a major motivator for the government to regulate the business processes in America. Social efficiency is reached where the government, through its interventions, ensures that the marginal benefits a society experiences through manufacture and use of goods as well as services from the market economy are the same to the marginal cost that is incurred during consumption and production of the commodities. This means that through government intervention fairness is ensured in both the consumer and the suppliers’ side by ensuring fair prices and commodities are produced in the market. Complexities that would arise under this New Scenario of Expansion via Capital Projects Due to various threats that might face a company in the future as a result of a merger, one option that a company can undertake to ensure that they are able to deal with the threats is to undertake expansion via capital projects. This is where the company outlays a huge amount of cash as investment of increasing their assets such as equipment, structures, and intangible ones such as information technology investments. Complexities that would arise are where buying the company uses a lot of money to expand yet the fruits of their expansion cannot be realised in a short time (Kuhne 2009). This might discourage investors who might opt to pull out of the expansion. Another risk is expanding into a saturated market where profits being enjoyed by the company are at its optimum. Unless the expansion helps in cost reduction, there will be no direct advantage realised by the company (Lyon, 2007). Convergence between the Interests of Stockholders and Managers Various forces result in the convergence of stockholders and mangers of corporations and business establishments. Pressures from competition, which result in the price of stocks declining results in managers taking strategies to ensure that they cope with the competition ten, ensure they do not chase away their investors. Managers are also given various stock options thus they ensure that the company performs well in order for their investments in the company’s stock no to fail. Managers also ensure that the company performs well in order to safeguard the stockholders interest to avoid being fired (Drury 2004). Conclusion It is thus clear that various issues affect the manner in which investments are undertaken in a market economy. It is crucial to acknowledge the government role when it comes to investments since it arguably plays the most significant role by ensuring that the market economy attracts as much investors as possible by putting up regulations that favour investment and ensuring that the country possesses an atmosphere that suits investment. References Drury C (2004). Management and Cost Accounting. Boston: Cengage Learning. Munich: GRIN Verlag. Kuhne C (2009). The Role of Financial Planning in Making Investment Decisions. Munich: GRIN Verlag Lyon. H. (2007). Investment. California: Houghton Mifflin. Northcott, D. (1992). Capital Investment Decision-Making. Boston: Cengage Learning. Read More