Corporations $tock$ –Dividends: $ given back to stockholders from profitable companies –2 examples of quarterly dividends (historical prices)

QUICK REVIEW—KEY WORDS WHAT IS (A)… BOND? PRINCIPAL? INTEREST? LIMITED LIABILITY – –the corporation itself, not its owners, is fully responsible for its debts and obligations –How is limited liability an advantage for corporations? PROXY –A ballot that give stockholder’s representative the right to vote on corporate matters

When a corporation wants to introduce a potentially profitable but risky product, it frequently sets up a separate company that has its own corporate structure. WHY do you think the corporation does this?

In the U.S., states/cities will often try to attract a corporation to build its headquarters in their state by offering tax credits or tax reduction. Why? HOW?

Another fun fact True or False: –Between 1998 and 2003, the United States’ share of worldwide internet commerce INCREASED. –In 1998, the US accounted for approx. 75% of all Internet-based commerce, compared with about 50% in –What are some examples of U.S.-based companies that do business online? What type(s) of businesses are they?

Quick Questions  Which of the following bonds is better? WHY?  How much did each BORROW by selling bonds?  Bond #1  Price: $5,000  Principal: $2,187,000  Interest Rate: 5.25%  Yield per Bond: $  Bond #2  Price: $1,000  Principal: $750,000  Interest Rate: 5.8%  Yield per Bond: $58.00

Business Growth and Expansion 3.2

What are 2 Ways a Business Can Grow? 1.Reinvesting Profits (Cash Flows) 2.Engage in a Merger –a combination of 2 or more businesses to form a single firm

Key Terms: What is the difference between revenue (income), net income, and cash flow? –Net income – the dollar amount earned by subtracting total expenses from revenues What are some all the expenses that a company might have?... –Cost of inventory, wages and salaries, interest payments, and depreciation – a non-cash charge the firm takes for the general wear and tear on its capital goods –the sum of net income and non-cash charges such as depreciation – it’s the bottom line, or real measure of profits

Why would a company choose to merge? 1. To grow faster And desire to be the biggest 2. To become more efficient – (How does merging make a company more efficient?) Cut their managerial costs in ½ Volume purchases bring costs down More effective use of advertising 3. To acquire or deliver a better product –(AT&T bought cable TV firms to provide internet) –To give more access and freedom to customer 4. To eliminate a rival –Royal Caribbean bought Celebrity Cruise Lines 5. Change its image –Valujet merged with AirWays to form AirTran Holdings Corp Everglades Crash

Types of Mergers Horizontal Merger – when 2 or more firms that produce the same kind of product join forces –Chase National and the Bank of Manhattan Vertical Merger – When firms involved in different steps of the manufacturing or marketing join together –Examples? –An automaker merging with a tire company –U.S Steel Corp. – at one time it mined its ore, shipped it across the Great Lakes, smelted it, and made steel into different types of products

Who Wins in a Merger? Brokers Investment Bankers Attorneys Accountants Managers paid and released Who loses?

Conglomerates A firm that has at least 4 businesses, each making unrelated products (usually none of which is responsible for a majority of its sales) Diversification – major reason to conglomerate –So as to avoid a calamity if one type of business fails, Conglomerates diversify to maintain a balanced and solid income Examples of calamities? Bad weather, isolated economic situations, sudden change in consumer tastes “Don’t put all your eggs in one basket.” 1970’s, 80’s - R.J. Reynolds owned Sea-Land (largest containerized shipping firm in US), KFC, Del Monte, Heublein (2 nd largest producer of wine) Think of 2 companies today that would be mutually improved if they merged

Don’t even think about it ALL MY EGGS IN =

CCU, a diversified beverage company of Chile

Multinationals A corporation that has manufacturing or service operations in a number of different countries. –Pay extra taxes –Subject to many different laws –Can easily move technology, resources, goods, services across national borders –Effect on under-industrialized countries is debated – Why? –Can demand tax, regulatory, and wage concessions –Usually 2 types of employees: management ($) and local workers. Sound familiar? –General Motors, Nabisco, British Petroleum, Royal Dutch Shell, Mitsubishi, Sony –“The World is Shrinking” – how does this apply to Multinationals?

VIDEOS Singapore: Attracting business (4:46) –Discovery Streaming, 1997 Kerala—Protect small retail? –YouTube:

Alliances Instead of merging, firms can make alliances with other firms. McDonald’s allied with?: –C–Coca-Cola (sells it in their restaurants) –D–Disney (helps them promote films, happy meals; Disney has allowed McD’s to open in their parks) –W–Wal-mart –C–Chevron (in their stations)