Essay, 8 pages (2000 words)

Policy effects on investment planning and strategy


One of the essentially significant long term decisions for any company relates to investment. Investment is the acquisition or formation of assets with the purpose of creating profits in the future. Classically investment engages using financial resources to acquire a building/ machine or additional asset, which will then yield returns to a business above an era of time. Investments planning entail thinking in relation to a series of issues that have a standing on where you eventually choose to place your money. These issues will differ as per to your particular circumstances, age, and approach to risk, and thinking regarding them cautiously prior to you establish making commitments will assist you keeping away from some potentially expensive mistakes.

1. Outline of a plan.

Product pricing for reaching out to the current and expected customers is very important for the managers. It is their perceptive and choices that are going to establish the accomplishment of any business. A most important strategy that guarantees that customers keep hold off with the product is to construct the product inelastic utilizing pricing and further strategies. On the other hand, before we explicate the strategies to build low-calorie microwavable food inelastic, we have got to realize the significance of elasticity.

Elasticity or elasticity of price is an assessment of quantity demanded offsets when price is modified, that is, it is a measure of accessibility of the consumer owing to changes in price. It is calculated as the percentage of the proportion change in the demanded quantity and proportional change in price. If the demand of elasticity is superior to one, we state that demand is elastics, if it is a lesser than one, we state that demand is inelastic, if equivalent to one, we state demand is unit elastic. Inelasticity essentially involve that the product is essential to the consumer, as a result even if the price goes up, customer will not act in response with an equi-proportionate reduction in demanded quantity. We have establish out in this case that the elasticity of price is -0. 61 which denotes a 1% price increase of the product sources demanded quantity to increase by 0. 61%. Consequently, the product demand is comparatively inelastic. On the other hand, from an extended term viewpoint, it is significant for the managers to make certain that inelasticity continues to be the advantage for the company.

So the primary strategy will be to classify the section of the consumer for which product of low calorie microwavable is essential and center on tendering services and benefits to these sections which tie up them to the product for an extended time. The managers require ensuring that their competitors cannot attract the customers with services and benefits that will put forward replacements to the buyers, as one of the means to create a product inelastic is having a smaller number of substitutes. Cost Reduction will as well assist the company by which they can surpass on the gain of reducing of cost by maintaining the price low and thus maintaining the base of customer. Innovation, diversity and getting out to an extensive customer base will as well assist in long run to continue the product inelastic.

2. Major effects of government policies

It is very important as a business manager to be aware of the effect of government policies on their business. Policies from more than a few levels in an economy can have an effect on the business. State, Federal, and local governments are engaged in the business enterprises regulation. At State level, regulations include of licensing of various businesses and regulation of public utility companies, for instance health care facilities, and copious professions, for instance law and accounting. At Federal level we have Antitrust Division and Federal Trade Commission e including several additional agencies that control business decisions. Correspondingly, Local governments normally set and put into effect building codes and zoning laws. Regulatory restraints can be imposed in non-discriminatory means on any set of comparable business. These restraints can have an effect on a capital costs, operating costs of firm (both variable and fixed), and revenues. Consequently when the firms cost is enhanced owing to several type of government regulation that may direct to decreased production and thus a lesser number of hiring.

There are more than a few firms in this case of the microwavable food, who are producing food which are to some extent diverse from each other, a situation that can be exemplified as differentiation of product. This is a typical instance of a monopolistically competitive market. Now as per to FDA, it is needed that the stated quantity for an substitute or imitation food or altered food, for instance a version of low calorie, should be the identical for the foodstuff for which it is proposed as a replacement. Consequently if the firm consecutively may want to capture the market may break the regulation that would have an effect on the firm.

3. Government regulation to ensure fairness.

Industry of Low- calorie microwavable food has been exemplified as industry of monopolistic competition. When sales of industry are concentrated in a small number of hands, market performance and conduct are not as much of likely to be aggressive in nature. One extensively used index of market concentration is the ratio of market concentration. It might be described as the proportion of output of total industry (measured in terms of sales, value added, employment, or value of shipments) attributable to the 4, 8, 20, or 50 major companies. Companies that stand-in alone can be controlled beneath the Sherman Act who are unlawfully endeavoring to monopolize a market or employ in monopolistic practices. Consequently, if the industry is basically concentrated in few hands, equality would need intervention of government. Similarly equality can be infringed when the industry performs discrimination of prices.

A big company that functions as a distributor or manufacturer in two (or more) diverse geographic (or product) markets and slashes wholesale prices in one market and not in the additional market can be indicted underneath the Robinson-Patman Act for alluring in unlawful price discrimination. Differential pricing directly to final product customers is permitted (and frequently based on “ what the market will stand”) however not so in pricing to transitional product resellers (distributors, wholesalers, etc.).

4. Major reasons for government involvement.

Governments intervene in the market because of social and economic reasons. Regulations turn out to be pleasing if the intervention effects into marginal benefit further than the intervention marginal cost. In the same way, when market may not offer the majority proficient outcome, it might require increasing it with regulation of government. Again, one more important feature is deliberation of ensuring fairness or equity in the process of decision making. It is significant that regulations of government benefit the poor, on the other hand, there is for all time an adjustment of trading off equity with effectiveness.

It is supposed that unregulated market can for times lead to inefficiency or as normally referred to as failures of market. For instance consider the markets for power, water, and telecommunications. In such circumstances a normal monopoly can offer the services mainly efficiently, however that would generate unregulated profits and market power. Therefore in relation to each economy there is a regulatory control in such markets that restricts profits and utility prices.

Correspondingly, there might be substantial differences in terms of social costs and values and private costs and values from the manufacture and using up of definite goods and services. This distinction is habitually referred as externality. One instance of unconstructive eternality is pollution of environment and in such a situation regulatory provisions similar to carbon tax can here contribute a significant role in harmonizing the negative effects of pollution.

5. The major complexities under expansion via capital projects.

All the companies want out to built big empires and for that carry out expanding the horizons of business. Therefore it is best that firm’s managers think of the extensive run and allocate resources to raise productive capacity, generate mechanism to advance cost efficiency, and expand the base of asset of the company. It is on the other hand, vital to note that any decision taken by the managers engage exposures and usually would affect not merely the existing cash flows however as well future costs in addition to benefits. Capital budgeting is a procedure that engages long term planning, needs appropriate mechanism to assess capital expenditures which fundamentally demands developments and, research training and education for employee, -buy versus lease- decisions, and decisions concerning acquisitions and mergers.

6. Key actions that need to be taken to address or prevent complexities.

The complexities engaged in expansion and capital budgeting require cautious and deliberated efforts and the subsequent steps might be taken consecutively to tackle these complexities. Primarily, managers should produce substitute project proposals of capital investment and endeavor to democratize the course of producing the ideas for fresh capital investments. Participation of all the stakeholders in producing fresh ideas, from factory workers all the means up to the Board of directors, will surely assist in sinking the complexities. It is as well significant to have an estimation of the cash flows for proposals of project. And following principles can positively aid in estimating such cash flows;

1. Cash flows that is calculated on a incremental basis, i. e. the cash flow stream for any project must be represented by the difference among the cash-flow streams to the firm with and devoid of recognition of the investment project.

2. Cash flows must be calculated on basis of after-tax, by means of the firm’s marginal tax rate.

3. All the indirect outcomes of the project all through the firm must be comprised in the calculations of cash-flow. For instance, if a division or department of the firm is considering a capital investment that will modify the costs or revenues of additional departments or divisions, then these external effects must be integrated into the estimates of cash-flow.

4. Sunk costs must not be considered when estimating the project. A sunk cost is an expenditure that has been completed (or committed to be made). Since sunk costs cannot be evaded, they must not be deemed in the decision to reject or accept a project.

5. The worth of resources employed in the project must be measured in expressions of their opportunity costs.

Consequently, the third part is appraising the viability of the project. Classically, a project will effect in an initial (first-year) outflow (investment) pursued by a sequence of cash inflows (returns) above a number of following years and there might be more than a few criterion to evaluate the viability of a project: be it Net Present value Internal or rate of return. In conclusion an inclusive review of the projects confirming the accurateness of the decisions and a mid-course rectification if required to be made.

7. Convergence of the interests of stockholders and managers.

It is rather normal to have a conflict of interest among the shareholders and managers. Consequently, it is imperative that managers are competent to identify such possible conflicts and offer answers to these conflicts. The foremost trouble comes from the allocation of profit amongst the shareholders and managers. Whereas shareholders would desire the profit to be dispensed as dividends, managers would desire this as bonus.

8. Most likely impact of above convergence

Here, there needs the synergy of interest among these two groups. One strategy would be to propose deferred stocks to the managers which enable the holder to acquire company stock at a small discount to its existing price. Consequently these are linked to the manger’s performance and offered as bonus. If the performance of firm’s consequently improves, capitalized value ascends and equally the managers and shareholders position to gain.


In conclusion, diverse investments perceptibly bear diverse risks; these risks require to be balanced in opposition to the prospective rewards. There is an extensive selection of financial instruments and asset classes to select from, and it falls to the individual investor to recognize the risks by reading the documentation, doing their homework, etc… prior to making any decisions on investment. Taking a positive view in the direction of investments can obstruct judgment and direct to higher risks being taken. Make balanced decisions founded on your original goals. The requirement to ensure you base your investment decisions on apparent reasoning sounds so understandable that it’s almost not worth pointing out. Yet it’s rather several people find astonishingly hard to do every time in practice.


  • G. N., Mankiw, (2012). Principles of Microeconomics (6th ed.) . Cengage Learning
  • J. R., McGuigan, R. C., Moyer, & F. H. deB. Harris, (2014). Managerial economics: applications, strategies and tactics (13th ed.). Stamford, CT: Cengage Learning
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