Notes, summaries, assignments, exams, and problems for Economy

Merger

A combination of two or more companies in which the resulting firm maintains the identity of the acquiring company.

Consolidation

The combination of two or more firms, generally of equal size and market power, to form an entirely new entity.

Portfolio Effect

Merger allows acquiring firms to enjoy potentially desirable portfolio effect:

• Achieves risk reduction while maintaining firm’s rate of return

Tax Loss Carry Forward

A loss that can be carried forward for a number of years to offset future taxable income and perhaps utilized by another firm in a merger.

Horizontal Integration

The acquisition of a competitor.

Vertical Integration

The acquisition of customers or suppliers by the company.

Synergy

The recognition that the whole may be equal to more... Continue reading "Merger and Acquisition Terms for Multinational Corporations" »

Economic Value Added (EVA)

EVA: The industry has an operating income for the year of $3,500,000 and a 36% tax rate. Its total invested capital is $20,000,000, and its after-tax percentage cost of capital is 8%. What is the firm's EVA?

EVA = $3,500,000 (0.64) – ($20,000,000 x 0.08)

$2,240,000 – $1,600,000 = $640,000

Personal Taxes

A married couple files a joint income tax return, where the tax rates are based on the tax tables presented in the chapter. Assume that their taxable income was $375,000.

What is their federal tax liability? $51,577.50 + ($375,000 – $230,450) * 0.33

= $51,577.50 + $47,701.50 = $99,279.00

What's their marginal tax rate? 33%

What is their average tax rate? $99,279.00 / $375,000 = 26.47%

Statement of Stockholders' Equity

The... Continue reading "Financial Statement Analysis: Solved Problems" »

1 Steps to Elaborate a Job Description

Job title, duties, skills and competencies, relationships, salary

2 Skills for New Receptionist

For our receptionist positions we need certain skills, communication skill, multitasking skills, confidential, computer literacy, friendly, intelligent, tolerant and patient, professional, innovative, organized

3 Pre-Opening Plan

• Establish a positive image
• Let customers know you are opening for business
• Bring in customers or have them contact you
• Interest customers in your new company and your product or service

Ongoing Plan

• Explaining major features and benefits of your products
• Communicating information about seller
• Clearing up customers' questions and concerns
• Introducing new goods or services

4 Labor Union

Is an organization... Continue reading "Effective Strategies for Job Description and Product Promotion" »

What is the European Union and its start date?

The first steps were to foster economic operations. Countries that trade with one another become economically interdependent. It came into force on July 1, 2000.

Benefits of the EU-Mexico Trade Agreement

The EU-based trade policy agenda sends a signal to the world that the EU and Mexico are open for business and reject protectionism.

Implications of the UK's Exit from the EU

A key transition period began to determine the future relationship between the UK and the EU.

What is the Pacific Alliance and its start date?

It is a mechanism of economic and commercial integration, based on four pillars. It entered into force on July 20, 2016.

Objectives of the Pacific Alliance

To promote greater growth, development,... Continue reading "Key International Trade Agreements for Mexico" »

Economies and Diseconomies of Scale

Economies of scale: Reduction in the average unit costs as the business increases in size. When a business increases the scale of operations, it becomes more efficient.

Diseconomies of scale: Increase in average unit costs as the business increases in size. This occurs when the business experiences inefficiencies as it becomes larger.

Internal Economies of Scale

Efficiencies the business makes itself:

• Technical: Bigger units of production reduce costs since the increase in variable costs are spread over a set of fixed costs.

• Managerial: Managers specialize in one job and not in many.

• Financial: Bigger businesses are less risky than smaller ones since big businesses are considered safe by financial institutions,

Market Structures

Pure competition is a theoretical market structure with three necessary conditions: very large numbers of buyers and sellers, identical products, and freedom of entry and exit.

Market structure is a classification that describes the nature and degree of competition among firms in the same industry.

Monopolistic competition is a market structure that has all of the conditions of pure competition except for identical products. Because a monopolistic competitor faces competition from a large number of firms in its industry, it must somehow convince consumers that its products are better than the products produced by other firms.

Types of Monopolies

• Natural monopoly: A situation in which a single firm can produce the product more cheaply

Key Functions of Inbound Logistics

Inbound logistics encompasses several critical activities necessary for managing the flow of materials and information into an organization. These functions ensure efficiency, cost control, and timely production.

1. Production Scheduling

   Scheduling of production is done with the assistance of the logistics staff. Production is scheduled in an attempt to balance demand for products with plant capacity and availability of inputs.

2. Procurement (Purchasing)

   Closely related to production scheduling is procurement (or purchasing), since many of the inputs needed for production must be procured from outside sources, known as vendors.

3. Returned Products Management

   In domestic markets, there are many categories of returned products.

Fundamentals of Economic Activity

Economic activity is the combination of tasks undertaken by people in order to obtain the goods required to meet their needs. These goods can be material, such as food, manufactured items, and cars; or immaterial, such as education and health care.

Key Economic Indicators and Units

Financial Markets: Core Functions and Definitions

• Markets that channel funds from those who have an excess of available funds to those with a shortage.
• They promote economic efficiency.
• They channel funds from those without a productive use to those with a productive use but who have a shortage of money.

The Necessity of Financial Markets

Financial markets address critical economic issues, including:

• Matching: Connecting borrowers and lenders efficiently.
• Transaction Costs: Reducing the time, energy, and money required to facilitate transactions.
• Asymmetric Information: Addressing information failure that occurs when one party has significantly more knowledge than the other party.
  • Adverse Selection: A problem of asymmetric information that occurs before

Key Characteristics of a Perfectly Competitive Market

1. Very Large Number of Producers

In a perfectly competitive market, there are a very large number of producers, each of whom produces a very small proportion of the total market output.

2. Producers are Price Takers

As a single producer produces a small proportion of the total output supplied in the market, their production decisions cannot affect the market price of the product. They have to take the prevailing market price as given and fixed. Thus, an individual producer faces a perfectly elastic demand curve.

3. Products are Homogeneous

Products are exactly the same and, therefore, are perfect substitutes for each other. This implies that the cross-elasticity of demand is infinite between... Continue reading "Understanding Perfect Competition in Economics" »