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ECO 550 Assignment 4 Levels General Motors

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Economics

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ECO 550 Assignment 4 Long-Term Investment Decisions Bank of
America Decisions for the Future
Bank of America: Decisions for the Future
ECO 550: Managerial Economics
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
Abstract
Long-term capital budgeting is the process used by many companies to
make substantial term investments, in order to receive the greatest cash
flow. A company must first look at an analysis of cash flows and cost and
earnings of the project to determine whether to accept or reject a capital
budgeting project. The three rules used to make decisions towards
capital budgeting; the payback period, net present value (NPV), and
internal rate of return (IRR). The Payback Period is the tool that is used
to determine how long it takes for the project to recover its initial costs
for funding the project. The Net Present Value shows how the present
project will affect the company. The Internal Rate of Return reveals the
discount rate if the NPV equals zero. The antitrust law is a federal and
state law regulation of corporations. The law insures that company does
not grow too large which may prevent the growth of other corporations.
The government believes that without this law that prices can become
fixed and demand will be unfair in the market. In Assignment 3, I
discussed the publicly traded company, Bank of America Corporation,
and how the corporation deals with competition and change. In this
paper, I will discuss the government regulations for mergers, the

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possible merger that could occur, and how the merger could be
profitable.
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.
Governmental regulation is highly important in today’s economy. There
are federal and state regulations that are set to ensure the common
wealth and beneficial care of the people. If a company was also involved
in global marketing, they would need to seek the governmental
regulations for that specific country to avoid any lawsuits or illegal
activity. A great example would be BBVA Compass Bank. BBVA (Banco
Bilbao Vizcaya Argentaria) is the international banking entity that bought
Compass Bank in America. When the Spanish bank decided to merge
with Compass Bank it established the company as a global market. With
the 2007 merger, BBVA Compass became the second-largest banking
industry across the Sun-Belt, and became the American banking entity of
the Spaniard bank BBVA. Each state that is covered under the banks
footprint have state regulations that must followed by the bank. Along
with those governing state regulations; federal regulations also have to
be followed. If there were any foreign transactions the governing rules of
state, federal, and international must all be met. If governmental
regulations did not exist then companies could have the right to handle
business however they pleased. If governmental regulations; like FDIC
(Federal Deposit Insured Corporation), Better Business Bureau, Patriot
Act, or Bank Secrecy Act did not exist then corporations could have fair
game to how the company could operate. Companies would monopolize
and rule out all competition amongst competitors, causing mayhem in
the business economy.
Justify the rationale for the intervention of government in the market
process in the U.S.
Many companies use forms of market processing in proposing new
products to present to customers. The process chooses the proposed
customer, addresses the consumer needs and wants, describes the
price, product, place and promotion and addresses the marketing
campaign. Government regulations ensure that banks provide fair
banking practices to all consumers, regardless of residential area or
income. “With the Bank America Better Balance Rewards credit card,

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customers automatically receive $25 for every quarter that they pay any
amount more than the monthly minimum due and make payments on
time. Card customers with a checking, savings or other qualifying
account relationship with the bank also receive an additional $5 bonus
each quarter. With the relationship bonus, customers could earn up to
$120 in cash rewards annually. ‘Customers have told us they want a
credit card that reinforces good payment practices and recognizes them
in a straightforward way for responsibly managing their credit,’ said Titi
Cole, Retail Products executive at Bank of America. ‘For consumers who
typically pay off credit card balances over time, paying more than the
minimum due each month can help pay off debt faster. We also want
customers to know that we appreciate their business by rewarding them
with an added bonus when they have additional banking relationships
with us.’” (Bank of America Introduces New Credit Card That Rewards
Customers for Good Payment Practices: www.dailyfinance.com). The
article provided above is a market process that was chosen by Bank of
America to market their new line of credit to customers. The purpose of
the line credit is to reward customers annually for positive payment
history throughout the year. When considering a customer for a loan the
company must make proper credit checks, to ensure that the amount
loaned can be paid back. This governmental regulation ensures that the
company does not provide a loan to a customer who cannot repay.
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.
Typical mergers consist of one large company attempting to buy a
smaller well-established consumer based company. Mergers do not
typically take place with two large companies, because of the issues that
could arise. The purpose of a merger is to establish the company in
areas where their footprint is lacking and to establish more customer
relationships. If Bank of America were to merge with Regions Bank the
process would be possible success. The possible relationship would
spread across the Sun Belt and would establish new banking
relationships through account conversions. Bank of America being the
larger entity would therefore enforce their policy procedures on Regions.
The account conversions would slowly take into effect at all banking
centers, giving customers and employees time to adjust to the new

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