Long Term Investment Decision

Long Term Investment Decision

A low- frozen microwavable food concept as of recent has gained fame and interest with families due to its ease of preparedness and preparation. Today, one of the major important decisions that firms need to make relates to its long term investment decision since it’s one of the pillars that determine the flow of operations of the company. Investment can be defined as the purchase of material assets with an aim of making profits in future. It’s simply a matter of using available financial resources for the purchase of machinery, construction of new buildings and other assets which are expected to yield returns for the firm after a given period.

It’s important for the firm to plan for these investments via critical analysis of various issues and projects which the firm managers feel will place the firm where it should hence it’s important to know where it is safe for the company to place its money. However, these issues and projects vary according to the age of the company, attitude to risk and capital available. Investing time to think about them before any commitment is important since it helps avoid some costly mistakes that would impact the firm negatively.

Product Price Strategy

Microwavable frozen food industry producer aims to keep their prices as inelastic as possible. This, however, shows that price strategy adopted by the firm will have little or no consequence on the manner which the product buyers perceive and purchase those goods. This kind of a demand is experienced in a situation where goods are basic needs which consumers cannot do without. However, this isn’t the case with microwavable food industry since the demand function purely depends on the prices of the relative products, consumer income, and advertisement levels. Market establishment of the microwavable food industry depicts that it is monopolistic competitive which is distinguished with a given number of buyers and sellers hence consumers can change to other brands if a given brand charges high prices (Mankiw, 2012).

Price elasticity quantifies the amount demanded concerning the change in price, i.e., % change in quantity and the % change in price. Elastic demand will occur when the price elasticity is greater than one and if the demand elasticity is less than one, there’s inelastic demand of the product. Therefore it implies that consumers respond to price increase through decreasing amount of quantity demanded. For instance, if we have a price elasticity of -0.5 means that a 1% increase in the product price causes a decrease in quantity demanded by a margin of 0.5 hence the demand is inelastic. However, in the long run, managers should ensure that demand inelasticity remains purely for the company welfare.

Managers need to identify the strategy and market segment on which they need to shift their attention towards provision of consumer services which bonds the consumer and the product for a long period. It is important for them to ensure that consumers are not lured by their competitors offering substitute products since the only way to make the product demand remain is via having few numbers of available options.

Reducing cost will help the company passage towards cost reduction through keeping their prices low and maintaining their consumer loyalty. Technological innovation and reaching out to a new market will also help the firm product remain inelastic in the long run.

Impacts of Government Policies on Production and Employment

It is important for the firm managers to know all the governmental policy implications on the operations, in this case policies from different market economy affects business operations. Government intervention influence the business production process, for example, a product which possesses high advantage to its public will tempt the government to promote its manufacturing through the offering of subsidies. This will increase the production of the good as well as creating new employment opportunities for her citizens in such firms.

On the other hand, if a product possesses the risk of causing harm to the public, there will be an initiative by the government controlling its production all for the welfare of the citizens.  Involvement in this case by the government will lower productuctivity of such good which intern creates unemployment and joblessness amongst the people. Via this, all business operations in the market reflect the need and want of all consumers and the people’s welfare in totality (Michael & Coglianese, 2004).

Microwavable foods are well packaged from a series of processes and stored in a way ready for consumption by the consumers. The government needs to interfere to ensure that producers maintain an excellent production standard since lack of interference will only lead to poor production standards. This will lead to the generation of negative externalities in the industry which tends to make more of the product for it to produce superior products at the expense of the quality. Hence product quality will lower causing damage to the public.

To ensure that quality standards are maintained, government involvement is indispensable however it diminishes product manufacturing which reduces employment. Government involvement can, therefore, result in unemployment to the society and firms will, by all means, prop up any government interference with their operations.

Government involvement in microwavable food industry

The microwavable food industry is characterized as a competitive, monopolistic industry with a given number of sellers. The concentration of industrial sales in a few hands reduces market performances killing its competitive nature. Concentration ratio is one of the indexes used to determine market concentration since it shows the percentage of the total industrial output measured regarding employment, sales or value addition.

To have fairness, firms which operate alone can be charged with attempts of trying to illegally monopolize the market hence need for government interference to ensure that that the market is not concentrated in few hands likewise fairness will be violated if industrial practices support price discrimination.

Government intervenes to ensure improvement and increase of efficiency in the market (Harding, 2007).  As a result, the whole society benefits with a guarantee of a high degree of quality products within the industry. An unregulated market will lead to market failure. For example considering the market for telecommunication, power, and water. In such cases, natural monopolies provide services efficiently however; it only creates high market power with unregulated revenues hence its importance in all market economy to have control which limits product prices and uneven profits.

Major Complexities Arising Through Expansion of Capital Projects

All the firms in the industry dream of growing big in future through expansion of their operational base. It is important for firm managers to consider the firm’s long term objectives which entail distribution of resources to increase their productivity.  Any decision made involves risk and impacts both the current and future cash flow of the business. Capital budgeting involves planning and evaluation of capital expenditure through education and training of employees, research and development and other decision involving mergers and acquisition (Samuelson, 2014).

Logistics involving business expansion and capital budgeting need concentrated efforts which need to be addressed. It is important for firm managers to generate various investment projects alternatives which will generate new capital investment. It is important to involve all the relevant stakeholders in the generation of new ideas since it helps in the estimation of proposed project cash flows.

Some of the guidelines the firm can use in measuring cash flow are:

  • Measuring cash flow on an incremental basis which means that every project cash flow is represented through the different streams of cash flow between the firm and the project.
  • A firm can measure its cash flow through an after tax basis which uses the firm’s marginal taxes.
  • Exclusion of sunk cost while evaluating the cost of the project hence should not be a factor to consider in determining which project to undertake.
  • Opportunity cost should be used to measure the value of the project.

There is need also to evaluate the project feasibility which results in an initial investment followed by successive returns in a given period. Some of the criteria used in the assessment of project feasibility include IRR and NPV.

Convergence between the Interest of Shareholders and the Managers

In every company, directors are the principal agents of the shareholders.  Therefore shareholders desire to follow the decision made by the directors which only aims at maximizing their value of shares (Michaels, 2011). However, conflict arises between the manager, and the shareholders are the distribution of amongst them. Since shareholders would like the profits distributed as dividends, unlike the managers who would want it as bonuses.

Formation of mergers and acquisitions results in the development of businesses in the industry which guides the interest of both managers and the shareholders who possess shares of the company. Through mergers, the need for both shareholders and the managers will be achieved. Lowered competitive rates experienced by the firm results in the creation of extra business opportunities (Maximizing Shareholder, 2004).

A case study about the international business strategy of various TNCs and MNCs, for instance, KFC and McDonald’s concerning the guiding plan on commercial activities which take place in different parts of the world. There different challenges faced by new MNCs when entering in new markets such as customer and suppliers acceptance, government regulations, competition, social and cultural factors in reference with McDonald’s and KFC challenges that they faced as new entrants in the new market.

Some specific strategies can apply to maneuver above challenges faced during the new market entrance. Examples are; market definition, market value and market volume.

Market definition: It is a fast moving market also known by the sales of drinks and foods which are consumed in their purchase premises or dining areas which are shared with other food stuff consumed in other places. Monitoring of data purely exclude sales via the vending machine but is only allowed to sell through an authorized food channel.

Market value: In operating buying prices, market values are given, that’s the capital spent by service food operators on the food stuff and drinks which are served but excluding amount spent by the consumers to buy food and drinks in the given market prices. Foodservice operator uses the market mark as a cover for costs to generate revenue hence valuation of based on the money which industrial manufacturers are competing.

Market volume: Reference to the totals of individual’s consumer visits to foodservice outlets involving consumption while multiple purchases during the visits are known as single transaction.

Conclusion

In conclusion, different firm’s investments carry different levels of risk which requires being balanced compared to the reward, which should be chosen from assets and financial assets.one should take an optimistic view and review towards investment before making any decision based on goals which will impede judgment and risks being taken.

References

Harding, D. T. Rouse, (2007), “Human due Diligence,” Harvard Business.

Mankiw, G. N., (2012). Principles of Microeconomics (6th ed.). Cengage Learning.

McGuigan, J, R, Moyer, R, C., & Harris, F.H. deB (2014). Managerial Economics: Applications, strategies, and tactics (13th ed). Stamford, Cengage Learning.

Michael, M. & Coglianese, C. (2004).The Role of Government in Corporate Government.

Samuelson F. W. &Marks, G.S. (2012). Managerial Economics (7th ed.). Wiley Varian, H.R. (2011). Intermediate Microeconomics: A Modern Approach (8th ed.). NY: Norton.

 

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