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ECO 550 Assignment 4 Long-Term Investment Decisions




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ECO 550 Assignment 4 Long-Term Investment Decisions
ECO 550: Managerial Economics and Globalization
Strayer University
Assignment 4: Long-Term Investment Decisions
Assume that the industry you wrote about in Assignment 3 wants to expand and has to make some longterm capital budgeting decisions. Now the
industry is confronted with government regulations to oversee the merger.
Write a four to five (4-5) page paper in which you:
1. 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.
2. Justify the rationale for the intervention of government in the market process in the U.S.
3. Assume that the company’s is considering a merger. The possible merger currently faces some
threats and that the industry decides on self-expansion as an alternative strategy, describe the
additional complexities that would arise under this new scenario of expansion via capital projects.
4. Analyze how the different forces will come together to create a convergence between the
interests of stockholders and manager
I. Manufacturing
1. Abstract.
When assessing the size and importance of the U.S. manufacturing
sector, it is vital to recognize that many other sectors, such as finance,
telecommunications, wholesale and retail trade, and accounting, depend
on a strong manufacturing base. While U.S. manufacturing itself is the
eighth largest economy in the world, its impact on the overall U.S.
economy is much larger when this “multiplier effect” is taken into
account. And reports of the demise of the manufacturing economy in the
21st century are clearly premature. While the general public perceives a
manufacturing sector marked primarily by a loss of jobs, the facts about
the industry paint a different picture.
The United States is the world's largest manufacturing economy,
producing 21 percent of global manufactured products. China is second
at 15 percent and Japan is third at 12 percent.

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U.S. manufacturing produces $1.6 trillion of value each year, or 11.2
percent of U.S. GDP. Manufacturing supports an estimated 18.6 million
jobs in the U.S.—about one in six private sector jobs. Nearly 12 million
Americans (or 9 percent of the workforce) are employed directly in
manufacturing. In 2009, the average U.S. manufacturing worker earned
$74,447 annually, including pay and benefits. The average non-
manufacturing worker earned $63,122 annually. U.S. manufacturers are
the most productive workers in the world—twice as productive as
workers in the next 10 leading manufacturing economies. U.S.
manufacturers perform two-thirds of all R&D in the nation, driving more
innovation than any other sector. Taken alone, U.S. Manufacturing would
be the 9th largest economy in the world.
2. Analysis of the latest leading economic indicators and their short term
impact on U.S. Manufacturing Industry.
Purchasing Managers Index PMI an indicator of the economic health
of the manufacturing sector. The PMI index is based on five major
indicators: new orders, inventory levels, production, supplier deliveries
and the employment environment.
Economic activity in the manufacturing sector expanded in May of 2011
for the 22nd consecutive month, say the nation's supply executives in
the latest Manufacturing ISM (Institute for Supply Management) Report
On Business. The PMI registered 53.5 percent and indicates expansion
in the manufacturing sector for the 22nd consecutive month. This
month's index, however, registered 6.9 percentage points below the April
reading of 60.4 percent, and is the first reading below 60 percent for
2011, as well as the lowest PMI reported for the past 12 months. Slower
growth in new orders and production are the primary contributors to this
month's lower PMI reading. A reading above 50 percent indicates that
the manufacturing economy is generally expanding; below 50 percent
indicates that it is generally contracting. A PMI in excess of 42.5 percent,
over a period of time, generally indicates an expansion of the overall
economy. Therefore, the PMI indicates growth for the 24th consecutive
month in the overall economy. Bradley J. Holcomb, chair of the Institute
for Supply Management Manufacturing Business Survey Committee
stated, "The past relationship between the PMI and the overall economy
indicates that the average PMI for January through May (59.5 percent)

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