Long-term Investment Decisions

Long-term Investment Decisions


Decisions on investments are attached to time, either long term decisions or short term decisions. Companies have diverse reasons for savings and the time limits on saving. Long term investment decisions are shaped by a number of issues depending on the chosen mode of investment. Diverse investments are attached to different investment risks; it is wise balancing potential rewards with risks. Consultative research is necessary for any companies making long term decisions; investors are encouraged to have firsthand information on the diverse costs involved in the investment strategies. Government regulations are involved in the market economy in different capacities.

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Government regulation in a market economy is critical in making sure that all the businesses taking part in the market economy face a fair playing ground (Rothbard & Rothbard, 2007). The government of the United States has set aside diverse business regulations in protecting the stakeholders, shareholders, customers, environment, employees and other parties involved in the market economy. The government regulates the power of corporations in societies that are business driven. Some of the common regulations set aside by the government of the United States identify with laws in advertising, laws in labor and employment, laws on environmental conservation, laws in privacy and laws in safety and health among others (Rothbard & Rothbard, 2007).

Surveys have indicated that the laissez-faire system runs the economy by itself and the government is never involved in the economic activities. Market economy is characterized by government facilitating a legal system that protects and enforce laws on the rights attached to the private property. Governments also provide public goods that would not be provided by private and individual businesses and that the government develops mechanisms of eliminating market failures like it happened with Enron.

The government also enhances healthy competition by discouraging selfish monopolies of organizations. The government also distributes income through taxing the individuals and organizations with huge incomes and giving the income to the weaker sectors at an interest (Rothbard & Rothbard, 2007). The government has the responsibility of stabilizing the economy; this is done by reducing inflation, unemployment and promoting diverse economic growth. The government of the United States facilitates different values identifying with discipline, trustworthiness, honesty, tolerance, cooperation, enterprise, courtesy and responsibility.

The government of the United States has a number of mechanisms applied in the regulating the market economy and processes. Common methods are government regulation and legislation such as prohibitive laws, competition policy, employment laws, price controls, fresh competition and market liberalization among others. Direct provision of state services and goods are attached to public schools, public hospitals and public utilities among others. Fiscal policy intervention is attached to supply and demand in the target market, indirect taxes, subsidies, tax relief, changes in welfare payments and changes in taxation. Intervention with the intention of closing the information gap in the market is accustomed to improving information or locking out information; an example is on the compulsory labeling of the health warning on cigarette packets among others.

Mergers and acquisitions are part of selling, buying, combining and dividing of companies. There is a difference between acquisitions and mergers depending on the desired economic outcome (Gaughan, 2010). A merger is characterized by combining of two organizations to become one organization. In mergers of equals, both organizations may form a different brand altogether since both parties have equal rights. Common types of mergers in the United States are: Conglomerate merger, market extension merger, horizontal merger, product extension merger and vertical merger. In this case, the option of a merger has some challenges and the company opts for business expansion through self expansion of capital projects.

Expansions through capital a project is characterized with huge amounts of cash in building, improving and maintaining the assets. Examples of capital projects are equipments, structures and intangible investments like patent portfolios. One of the major challenges with capital projects is getting the required funds, it has been noted that a company may get funds from grants, banks or from individual investors, the model of funding capital projects is determined by the nature of the business or project (Gaughan, 2010). There are a number of terms that must be in place for the financing of the capital projects to take place. Some of the critical reports identify with regular progress reports, clear project controls, cash flows, scheduling reports and management of cost overruns among others. Different funding companies require different securities for any cash that has been supplied to organizations as funding, which may be attached as a security if the firm fails to pay back the borrowed cash.

Capital budgeting is critical in choosing the best model of expanding an organization. It has been noted that capital budgeting can be done through payback period, Net Present Value capital budgeting, profitability index, modified internal, real options valuation, Rate of return, the Internal Rate of Return method, Real options valuations and through Accountable rate of return (Shapiro, 2004); Each and every option has some pros and cons in defining the desired results as per the business strategies and capabilities of the organization. Capital budgeting is carried out with the intention of improving the value of the organization and shareholders.

Conflicts between managers and shareholders is a reality as both parties hold different interest, the forces must come together in creating a convergence that is profitable to the organization at the end of the day (Rappaport, 2009). It has been noted that there are a number of factors that discourage the shareholders from taking full control of organizations, the majority of researchers argues that this is not right since management is better informed as compared to the shareholders.

Considering economic theories, the board of directors in organizations primarily represents the shareholder’s interests, although in practice there are a number of self-interested managers in organizations (Rappaport, 2009). The owners of organizations in many cases seek greater voice when it comes to the decision making processes within the organization. Convergence of the interest of the managers and shareholders is realized through greater participation of the shareholders in the running of the organization, which would ultimately increase the profitability of the organization (Stout, 2012). Convergence is also fostered by timely and open communication of the shareholders and the board of directors.

Human capital in organizations is critical for the success or failure of a business entity, organizations must choose the right people in spearheading the right changes (Daves et al, 2003). Knowledge and competitive edge in organizations are initiated by people and also ends with people; which propel the organization to new levels. Organizations must maintain, preserve and improve the abilities of human capital


Organizations are becoming more and more complex reflecting on changing global business environment. The government of the United States has set aside diverse regulation models in making sure that the market economy is under control and fair to all players. Companies must consult a number of variables in making long term decisions and also short term decisions.



Daves, P. et al. (2003). Corporate Valuation: A Guide for Managers and Investors. Stamford, Connecticut: Cengage Learning.

Gaughan, P. A. (2010). Mergers, Acquisitions, and Corporate Restructurings. Hoboken, New Jersey: Wiley.

Rappaport, A. (2009). Creating Shareholder Value: A Guide For Managers And Investors. New York: Free Press.

Rothbard, M. & Rothbard, M. (2007). Power and Market: Government and the Economy . Kansas City, Missouri: Sheed Andrews and McMeel.

Shapiro, A. C. (2004). Capital Budgeting and Investment Analysis. Upper Saddle River, New Jersey: Prentice Hall.

Stout, L. (2012). The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public. San Francisco, California: Berrett-Koehler Publishers.


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