Long-Term Investment Decision (Term Paper Sample)

Long-Term Investment Decision Why regulation is important For the merger, government regulations are important so as to determine whether or not the merger intended for expansion falls within the legal boundaries. This will also allow the government to learn about the market share of the company, the impact and their activities in the cinema industry in addition to the matters related. The main goal here would be to estimate the impacts, and should a dominant company emerge or competitions undergo suppression, it may violate anti- trust law. This is why intervention of the government is important in the merger aimed at expansion. The role of the government in a market economy A market economy refers to the economy that largely depends on the market forces so as to allocate goods and resources as well as determination of prices. In a market economy, the government has a few roles given that a majority of decisions are made by producers, consumers as well as individual consumers. The roles of the government include; Provision of a legal system The government has the responsibility of making and enforcing laws that will guide all the players in the market. Moreover, it plays the role of protecting private property right. Provide public goods- these includes public goods that can not be provided by the private business. Correct failures of the market- the government also play the role of correcting market failure such as the external costs and benefits, Maintain competition- this is achieved through the regulation of competition where necessary, Redistribution of income- the government does this though taxation of those with higher income so as to be fair to everyone. This helps in helping those who are in need. Stabilizing the economy- the stability here is achieved through a reduction of cases of unemployment, inflation and promoting growth of the economy. Rationale for intervention of the government in the market process Market processes do not always work in an efficient manner. As a result, the government has to play an important role. In the United States, interventions of the government can be divided in to two main categories that include; * Setting the framework within which the market will operate, * Influence the outcomes of the market, The government plays an important role that aims at creating basic frameworks in which open and fair competitive markets will exist. Rules and regulations are set to determine appropriate conduct of consumers as well as the firms, and hence create institutions that are required for their enforcement. Markets would not be well able to operate effectively without the rules and regulations (Conte and Carr, 2001). Consumer and competition law frameworks are important in that they help ensure that the market power is not influenced by firms in addition to protecting consumers from unfair trading practices. Best outcomes will be ensured by the effective rules and regulations created by the government. This will help in avoiding a poorly regulated market, which can be detrimental to the consumers. Through competitive law, firms are prevented from making agreements that are anti- competitive, and thus ensure that the dominant firms do not end up exploiting their position and distort outcomes of the market. The intervention by the government also ensures that consumers are protected from fraud, scams among other abusing practices. Moreover Expansion through capital projects would mean that the company would have to spend much more since they have decided against a merger, which would have seen the other party contribute on the capital. This would also mean the production of benefits over the long run. In this industry, expansion would mean new theaters, new technologies including the 3D cinema. Given that the company will need such assets, it will spend a lot of money given that this will cost much. However, this would be possible in the long run. However, this would also mean a significant alteration of the major financial statement including the income statement as well as the cash flow statement. This would also have an impact on the financial goals as well as the pricing due to the financial burden due to the money spent on the capital project. Forces that cause convergence There are a number of forces that bring about convergence between interests of given stakeholders and the managers. This causes the managers...