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Considering the Cost of Capital
When Roberto Goizueta became Coke's CEO in 1981, he took over a poorly performing company that had diversified into unrelated businesses ranging from water purification to shrimp farming. One of his first initiatives was to analyze Coke's various businesses using economic profit. The analysis concluded that only Coke's core carbonated beverage business was creating shareholder value. The other businesses, while generating revenue, were actually consuming value. Consequently, they were divested or shut down. Goizueta then focused on Coke's core beverage business using its substantial competitive advantages: global brand, worldwide distribution system, and sales and marketing expertise. The result was 18 years of success.
Similarly, when Bob Lane took over a poorly performing John Deere in August 2000, he quickly identified Deere's biggest problem: spending too much money to make money. Factories tended to overproduce, leading to a large number of very expensive, large farming machines simply sitting on dealer floors. Lane began looking at economic profit. He decided managers were treating capital as a free resource. He charged each division manager 1 percent each month of the cost of the assets they used and required that at the end of the year their financial results exceed the charges. Deere has done well in the succeeding years.
Discuss how the Coase Theorem provides an alternative to a government regulation and provision of services. How is the definition of private property a critical part of this analysis? Please explain in detail.
What are the elements of global economy that play vital role in a company's existence?
What does behavioral economics have to say about each of the following statements? "Nobody is truly charitable--they just give money to show off." "America has a ruthless capitalist system. Considerations of fairness are totally ignored." "Selfish pe..
Based on the information above, we can expect that over the next twenty years, the average annual percentage change in the peso per dollar exchange rate will be ______.
Illustrate if the table represents the demand faced by a monopoly firm, then what is that firm's marginal revenue as it increases output from 1300 units to 2200 units.
In Role of Government in Regulating Business Ethics and "Business Ethics: The Law of Rules, the authors seem to argue that overreaching laws and regulations do not facilitate ethical behavior, and indeed might have the opposite effect. Using these ar..
You are an economic analyst and one of your clients is your Aunt Ginger. You have not met with her for a year, and she has just closed the books on her first year in business. Her accountant has informed her that she made a substantial profit, and sh..
Assume a majority of governors are reluctant to increase interest rates to fight inflation for fear of causing too much unemployment in the short run. How is this situation most likely to affect the Fed's credibility?
Economic growth does not depend on how much people save or businesses invest, only on how much they consume. Which of the following is NOT included in our calculation of GDP? Suppose a farmer buys $100 worth of seed, $50 worth of fertilizer, and $100..
What is the relationship between a firm's total revenue, profit, and total cost and define economies of scale and explain why they might arise. Define diseconomies of scale and explain why they might arise.
Suppose that the US dollar interest rate and the Swiss Franc interest rate are the same, 5 percent per year, but that there is a risk premium of 1 percent associated with holding Swiss Franc rather than US dollars over the year. (b) If the expected f..
In general, illustrate what happens to the level of consumer surplus as the price of a good falls.
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