ECO 550 _WEEK 9_Assignment 4_ Long-Term Investment Decisions_FINAL
ECO 550 _WEEK 9_Assignment 4_ Long-Term Investment Decisions_FINAL
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Running Head: LONGTERM INVESTMENT DECISIONS 1 LongTerm Investment Decisions June Chase, Anielli de Padua Guimaraes, & Jaye Jones Professor Gil Ramos ECO 550: Managerial Economics June 16, 2013 LONGTERM INVESTMENT DECISIONS 2 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. In a perfectly pure competition market where the market forces of supply and consumer demand are the most important and regulating factors, there is no need for government regulation. The consumer choice, price, and barring manipulation are truly what the market will bear. In reality there is human nature and the desire to be first along with the rugged individualism mentality which has become the hallmark of American Capitalism. The aggressive entrepreneurial or venture capitalist drive along with ready available capital produces the desire for most market ventures to be the fore runner. This is not an indictment of free market economy, however the badge of honor it wears. The problem emanates when the fore runner commences to execute unsavory tactics to stifle existing competition and block new entrants into the market controlling supply and fixing the price. Markets and market systems appear to be efficient. However, the United States Government intercedes with the businesses from time to time. There are several reasons economists and social observers have identified illustrating the role of government is not to visibly have an active role in the marketplace, but to improve the functioning of the market economy. The decision to regulate or intervene in the play of market forces must carefully balance the outlays of such regulation the intervention will bring (Watts, 2012). This is evidenced in the spawning of the industrial revolution when the emergence of trade regulation began with The Sherman AntiTrust Act of 1890. This landmark and historic law was the beginning of necessary government intervention to legal trusts established by the LONGTERM INVESTMENT DECISIONS 3 likes of Standard Oil, American Tobacco, and several coal and railroad trusts whose exclusive holdings made for high prices and restricted outputs (McGuigan, Moyer, and Harris, 2011). Thus, the beginning of government intervention. The intervention continues today with the same two overarching objectives: protect the public interest and maintain marketplace atmosphere that is fair and legal. Justify the rationale for the intervention of government in the market process in the U.S. The justification of government intervention in the US market process is (1) providing for a market that is competitive by keeping monopolistic and other anticompetitive tactics at bay, (2) protecting the public interest, and (3) enabling and encouraging innovation. These are accomplished via the antitrust regulation statues and their enforcement which prohibits monopolies as stated in the Sherman Act, 1890 (McGuigan, Moyer, and Harris, 2011). The presence of anticompetitive business practices of collisional price fixing, wholesale price discrimination, exclusive dealing and tying contracts, antimerger regulations, and interlocking directorates as specified in the Clayton Act, 1914 (McGuigan, Moyer, and Harris, 2011). The complementary establishment of the Federal Trade Commission on the heels of the Clayton Act in 1914 oversaw and executed enforcement of the antitrust regulation statues. The Federal Trade Commission is the nation’s consumer protection agency. The FTC’s Bureau of Consumer Protection works for the consumer to prevent fraud, deception, and unfair business practices in the marketplace. The bureau enhances consumers’ confidence by enforcing federal laws that protect consumers (FTC.gov, 2013). The policy of the government is to ensure that products are available to the consumers at lower prices. For the performance and development level of the economy to improve the United LONGTERM INVESTMENT DECISIONS 4 States Government involvement ensures that most of the organizations do not burden high prices to the customers. It is unlawful to engage in price fixing and price discrimination In the United States. Price fixing and discrimination hurts consumers. In order to protect the interest of consumers the government forbids these practices. Another area that government keeps close eye is on mergers. All mergers have to be approved by the U.S. Department of Justice (DOJ). The merging companies must notify the Justice Department and about their merger and wait for 30 day before the merger can take place (DOJ.gov, 2013). This circumvents the possibility of firms building monopolistic power by merger. Assume that the company’s is considering a merger. The possible merger currently faces some threats and that the industry decides on selfexpansion as an alternative strategy, describe the additional complexities that would arise under this new scenario of expansion via capital projects. When an organization contemplates moving toward a merger it is possible that technology is jointly interconnected among the merged organizations. In March 2011, AT& T announced the purchase of TMobile. The United States Justice Department (DOJ) obstructed the transaction (CNet.com, 2011). The denial of the AT&T / TMobile merger by the Department of Justice citied antitrust monopolization characteristics to include the unacceptable HerfindahlHirschman Index, the lack of ease of entry of another competitor to replace T Mobile, and lack of confidence in the concentration leading to efficiencies and lower costs for consumers (Stewart, 2011). The DOJ view of the merger constituted the elimination of a viable competitor, T Mobile. The merger advances the strangulation of a second viable competitor Sprint. The LONGTERM INVESTMENT DECISIONS 5 possible elimination of the two AT&T competitors results in less choice for consumers. Despite that, AT&T continued its quest to be and maintain its top tier role in the wireless telecommunication market via selfexpansion. Its expansion took on the form of permission from the Federal Communications Commission (FCC) to acquire and use additional spectrum (FCC.gov. 2011). Currently underway is AT&T’s $14billion capital investment expansion, which include: expanding AT&T's 4G Long Term Evolution (LTE) network to cover 300 million people by the end of 2014, reaching 1 million additional business customer locations with fiber by 2015, and extending wire line service and highspeed IP Internet access via IP wireless and/or 4G LTE to 99 percent of its customer locations (Maisto, 2012). Analyze how the different forces will come together to create a convergence between the interests of stockholders and managers indicating the most likely impact to profitability. Provide support for your response. According to Mankiw, G.N. (2011), organizations are required to ensure a high level of convergence between the interest of the stockholders and the management of the organization. Furthermore, the government makes certain policies and procedures for the ensuring that organizations serve the interests of the shareholders. It is principal that the organizations follow the instructions of the government to a higher level. The United States Government toils to warrant that there are not any issues. If concerns arise penalties are imposed on the organizations. Convergence of stockholder and manager interests intersect at the point of economic profits: revenues greater than costs. Specifically, the normal rate of return on capital contributed by the firm’s owners, ensuring that it is wisely calculated, spent, and monitored to increase LONGTERM INVESTMENT DECISIONS 6 shareholder wealth for the risk they assume. The management simultaneously depicts efficient performance and alignment with shareholder wealth maximization with forwardlooking and longrun oriented dynamic strategies that anticipate change (McGuigan, Moyer, and Harris, 2011). Managing a complex and capitalintensive project is performed by structured collaboration that allows streamlined project management operations while maximizing profits. This helps to eliminate the usual thirty percent of wasted costs on projects in general (Wales, 2010). The convergence is also evidenced in the positive trend of quarterly financials during and after the initial takeoff of the initiative. First quarter financials of AT&T reassured internal and external stakeholders that the expansion continue to be an opportunity rightfully seized. Adjusted earnings per share (EPS) were up 8.5% in 1Q13 from 1Q12, consolidated revenue of $31.4 billion up 0.9% year over year, strong free cash flow. Furthermore, $8.2 billion cash from operating activities, $3.9billion free cash flow, and $8.4billion returned to shareholders in 1Q13, the quarter immediately following commencement of expansion of wireless and wire line business streams on income (AT&T.com, 2013). This study of a major player in the telecommunications industry study sought to provide an observation of “Market Model Patterns of Change” and “LongTerm Investment Decisions”. In a market economy, the government’s involvement is regulated within limits sometimes warranted to discourage unfair practices in the market and to protect the consumers. Without government involvement price fixing and discrimination could possibly hold dominant rule over the citizens of the United States. LONGTERM INVESTMENT DECISIONS 7 LONGTERM INVESTMENT DECISIONS 8 References AT&T (2013). AT&T investor update. 1Q13 earnings conference call April 23, 2013. Retrieved June 14, 2013 from: http://www.att.com/Investor/Earnings/1q13/slide_c_1q13.pdf CNet.com (2013). AT&T and TMobile: By the numbers. Retrieved June 11, 2013 from: http://www.cnet.com/830117918_12004521685.html DOJ.gov (2013). The United States Department of Justice. Retrieved June 11, 2013 from: http://www.justice.gov/ FCC.gov (2011, December 22). FCC Approves AT&T Acquisition of Qualcomm Licenses. Retrieved June 14, 2013 from: http://www.fcc.gov/document/fccapprovesatt acquisitionqualcommlicenses FTC.gov (2013). Retrieved June 12, 2013 from: http://www.ftc.gov/ Mankiw, G.N. (2011). Principles of Economics. (6th ed.). Cengage Learning. Maisto, M. (2012, Nov.11). eWeek. “AT&T's project VIP to invest $14 billion in 3 years in key areas”. Retrieved on June 13, 2013 from: http://www.eweek.com/mobile/attsproject viptoinvest14billionin3yearsinkeyareas/ McGuigan, J. R., Moyer, R. C., & Harris, F. H. D. (2012). Managerial economics: Applications, strategy, and tactics (12th ed.). Mason, OH: SouthWestern Cengage Learning Stewart, J.B. (2011, September 9). New York times business day. ”Antitrust suit is simple calculus”. Retrieved on June 13, 2013 from http://www.nytimes.com/2011 /09/10/business/attandtmobilemergerisatextbookcase.html?pagewanted=all&_r=0 Wales, P. (2010, April/May). Area development site and facility planning. “Managing the complexity of large, capitalintensive projects”. Retrieved June 15, 2013 from: LONGTERM INVESTMENT DECISIONS 9 http://www.areadevelopment.com/AssetManagement/may10/managingcomplexity capitalintensiveprojects2954.shtml Watts, M. (2012). What is a Market economic?: Government in a market economy. Retrieved June 11, 2013 from: http://infousa.state.gov/economy/overview/mktec8.html
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