Question: Applications: A big, foreign-owned corporation is

Get premium Solution to all your Homework Assignments exclusively on writerkingdom. We have CFA/MBA writers to provide model answers to your every academic problem

Compare

Description

Question:
Applications: A big, foreign-owned corporation is currently making relatively high profits producing low-income houses, in the absence of government intervention. At its current housing prices, the firm sells all it wants to produce. It is using relatively low cost foreign lumber as one of its important inputs in production. Vocal critics object to the high profits of this foreign-owned firm. Use the principles of financial management to answer the following questions:

(a) Is the firm acting in its own self-interest and/or society’s interest? Explain.

(b) Will the firm voluntarily lower its housing prices? Explain.

(c) Would it help society if the government forces housing builders to lower housing prices? Explain.

(d) Would it help society if government reduces the firm’s profits by using import restrictions to raise the firm’s cost of foreign lumber or to force the firm to buy more domestic lumber? Explain.

(e) Would it help society if government forces the firm to issue new financial securities to make the firm at least 51% owned by domestic firms and households? Explain.

(f) Would it help society if the government takes over production of low-income homes? Explain.

(g) Would it help society if the government heavily subsidizes the purchase of lumber by housing builders to help them cut their production costs and thereby cut their housing prices? Explain.

(h) Would low-income households be better off to build their own homes? Explain.

(i) Are other firms likely to enter the industry and, if so, will this help society? Explain.

Answer:

(a) The firm has assessed the need and found the business opportunity in the low-income houses. The firm is serving both the purposes; it is making available low income houses at high profits which the other competitors are unable to provide.

Ans.(b) As long as the firm is able to maintain its sales levels the firm may not consider reduction in prices but as the sales goes down because of economic factors, competition or any other factors the firm may consider reduction in prices to boost sales.

Ans (c). It would definitely help the society to a large extent as it would cover the population which is unable to buy the houses at the existing sales price of the firm.

Ans (d). This may not help the society as once the cost of the input goes up the firm may increase the prices of housing to maintain the profitability which is adverse for the home buyers. However the condition of buying more domestic lumber may help the local industry which may help in creation of more jobs.

Ans (e). This would help the society as the profits generated by the firm will be distributed to the domestic firms and households which would help in increasing their income levels.

Ans (f). This may help the society as the prices of the houses will further go down as govt does not work for profit. Therefore the home buyers may get the houses on cost cheaper than the prices charged by the firm.

Ans. (g). This may help the society as there would be competition in the market which would result in availability of quality houses at lower prices.

Ans (h). It may not be better off for the low income house hold to build their own home as cost of building a single unit would be much more than constructing units in bulk.

Ans (i). Looking at the higher profits of this firm, other firms may be attracted in this segment which may be good for the homebuyers because of the competition.

 

Reviews

There are no reviews yet.

Be the first to review “Question: Applications: A big, foreign-owned corporation is”

Your email address will not be published. Required fields are marked *