The Weighted Average Cost Of Capital Finance Essay - Free Essay Example

Sample details Pages: 9 Words: 2777 Downloads: 8 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? The weighted average cost of capital (WACC) of a firm simply refers to how much, on average, it costs the firm to raise money. That is, it is the average rate that the firm must pay on any new capital that it raises. The importance of the WACC is in its relation to the evaluation of projects. For a scale-enhancing project (see definition below), the WACC is the appropriate discount rate at which to evaluate the project. Definition: A scale-enhancing project is a project that is similar to the firm as a whole. It has a similar level of risk to the existing assets of the firm. The use of the WACC as the discount rate should make intuitive sense. If, for example, the firm must pay an average of 8% on capital that it raises then projects that return less than 8% should be rejected. Projects returning less than the cost of capital will certainly lose money as they will not even cover the payments required to finance the project. This will be reflected in those pr ojects having NPV0 when 8% is used as a discount rate. The use of the cost of capital as a discount rate is the reason that the costs of financing are never included as cashflows when evaluating a project. For instance, if the firm will have to borrow money in order to finance the project, the cashflows of the loan (receiving the loan, making interest payments and repaying principal) are never considered when estimating the cashflows to an investment. This is because the costs of financing are taken account of in the discount rate, and putting them in as cashflows would mean double-counting them. When a project is not scale-enhancing, practitioners tend to use ad hoc adjustments to the WACC in order to determine the appropriate discount rate. For instance, one would use a slightly higher discount rate if the project is slightly riskier than the current assets of the firm. These adjustments are based upon best guesses, but these guesses are based upon analysis of the risk of th e project through things such as sensitivity analysis. The basis of determining WACC is to determine the costs of each of the individual sources of long term financing for the firm, weight those costs by the degree to which the firm uses the different sources, and simply add up the weighted costs. Example: Assume that the firm makes use of only two sources of financing, debt and equity. Let S be the market value of all of the common stock of the firm and D be the market value of all of the debt of the firm. Thus S+D must be the total value of the firm. Let rd be the cost of debt financing for the firm and let rs be the costs for equity financing for the firm (these will be defined later). The WACC for this firm will be: This equation is the same as saying: WACC = (percent of the firm that is equity) times (cost of equity) plus (percent of the firm that is debt) times (cost of debt) (Note that this example ignored the tax effect of debt.) Conceptually, it is easy to think of the cost of debt. The return to the holder of the debt is the same as the cost to the firm. If the holders of the firms debt are earning 5% on their investment, then the debt must be costing the firm 5%. The cost of equity is a little more difficult concept, although the effect is the same as that of debt. It turns out that the cost of equity financing is simply equal to the expected return of the firms stock. An expected return of rs is required in order to induce new investors to buy the stock of the firm. From the opposite viewpoint, rs is the return that the current shareholders (who own the firm) must give in order to attract new equity capital. Issuing new equity entails a cost to the current shareholders as they give up a portion of the firm and the right to a portion of the future dividends. This cost is measured by the expected return on the stock, which is also the cost of equity capital. The weights used in the WACC for the various sources of capital are b ased on their market values (although book values are sometimes used because they are easier to obtain). The weights are based upon the capital structure of the firm as a whole, not on the financing used for any particular project. The general view here is that the financing mix used for a particular project is coincidental. Consider two projects that are identical except that one will be financed through debt and the other through equity. It does not make sense to apply different discount rates to identical projects simply because of the choice of financing. Generally, if the firm has set goals for their capital structure (e.g. a target debt/equity ratio), then these goals are used to determine the weights. The view on this is that the firm will reach these goals eventually and therefore they are the appropriate weights to use for determining the cost of long term financing. Up to now, we have viewed the appropriate discount rate for a project as the opportunity cost of capital, the expected rate of return on an investment of equal risk. How can this be reconciled with the use of the WACC as a discount rate? It turns out that the two things are exactly the same. Proof that WACC and Opportunity Cost of Capital are the Same Assume that the CAPM holds (this is not necessary to prove that the two things are the same, but it means the proof is relatively straight forward). We want to use the expected return an asset of equal risk (the opportunity cost of capital) as the discount rate. The risk of the project is the same as the risk of the rest of the assets of the firm (because it is scale-enhancing). Thus, the risk of the project is measured by  Ãƒâ€šÃ‚ ¢asset. Because the bonds and the equity if the firm are both securities, each will have a beta associated with it,  Ãƒâ€šÃ‚ ¢debt and  Ãƒâ€šÃ‚ ¢equity. There are two ways to purchase the firm: 1) purchase all of the assets of the firm (create an identical firm) The ris k of this investment would be represented by  Ãƒâ€šÃ‚ ¢asset. 2) purchase all of the equity and all of the debt of the firm (so that you own the firm free and clear of debt) The risk of the investment would be represented by the weighted average: Both methods would give the same result, therefore the two measures of risk must be the equal: Now, the opportunity cost of capital will be found from: expected cost of equity = rs expected cost of debt=rd Thus, the opportunity cost of capital is simply a weighted average of the costs of debt and equity and is equivalent to the WACC. Hence, WACC is the appropriate discount rate. The reason that the WACC is used instead of directly applying the CAPM with the asset beta is that  Ãƒâ€šÃ‚ ¢asset is unobservable, but the costs of financing are observable. Determining the Costs of Financing In order to determine the WACC, the costs of the individual sources of long term financing must be determined. In reality, there are four sources of capital: 1) Debt 2) Preferred Stock 3) Common Stock 4) Internally generated funds (retained earnings) 1) Debt: Generally, the cost of debt is the yield to maturity on the bonds of the firm. It is not the coupon rate, but the yield that is important. This is because the yield is the rate the firm would have to pay if it issued new debt now. That is, it is not the rate that the firm had to pay on old debt that matters but the rate that is prevailing in the market today. This current market rate is measured by the current yield on the bonds of the firm. Note that flotation costs will often affect the cost of debt. This might include things such as the legal fees, administrative fees et cetera of floating a new issue. These reduce the proceeds realized by the firm on a bond issue. (They get less money, but make the same interest payments). Example: A firm issues one million in face value of new bonds with a coupon rate of 6%. These bonds have ten years to maturity and coupon payments are made annually. In order to sell all of the bonds, the firm prices them at $950,000. It pays $40,000 on flotation costs. In this case, the yield of the bonds is: But, the actual debt to the firm is y*: Note that interest payments on debt are tax deductible for corporations. Thus, it is really only the after -tax cost of debt that is of concern. In this case, if the effective corporate tax rate on the firm is 34%, then the after tax cost of debt is: 7.3%(1-0.34) = 4.818% Note: The greater the number of years to maturity of the bonds in question, the less the effect of flotation costs. The intuitive reason for this is that with longer lived debt, the effect of the flotation costs are spread out over a longer period (even though they are, of course, actually paid up front). 2) Preferred Stock: Preferred stock is like a cross between debt and equity as it is equity that requires a fixed dividend payment. The cost of preferred equity is simply defined as the dividend yield on the stock. Let: dp= fixed annual preferred dividend. Pp=price of preferred rp=cost of preferred equity Note that it is actually the net issuing price that should be used in this equation. That is, the price of the preferred stock net of any flotation costs that would have to be incurred in order to issue new shares. 3) Common Stock: There are two main methods used to calculate a cost of equity capital for common stock: a) Capital Asset Pricing Model b) Gordon Dividend Growth Model a) The use of the CAPM simply involves estimating the expected return on the firms common stock through CAPM and using that estimate as the cost of common equity capital. b) Gordon Dividend Growth Model: The Gordon Dividend Growth Model is based upon the price of a stock being the discounted value of all the future dividends: If we know all of the future dividends then we can solve for the discount rate in the above equation. This rate (the IRR of the stock) would be analogous to the yield on a bond. This rate would be the yield of the stock. In other words, it the expected return that is required in order to make the present value of the future dividends equal to the current price. Another way of saying the same thing is that new investors require this return to induce them to invest in the firms shares. The rate that one solves for in the above equation is the cost of equity (rs) in the Gordon Model. The question is, how does one estimate this rate given that one cannot know all future dividends? Consider the case where dividends are constant forever: Thus, given constant dividends, the cost of equity is simply the current dividend yield on the stock (the cost of preferred equity can thus be seen as an application of this approach). However, the following should make clear that perpetually constant dividends implies that all profits of the firm are paid out as divide nds (which is not a very common real world phenomenon). Let Et be the earnings per share in year t (total firm profit divided by the number of shares). Most firms will pay some of Et out as dividends, but will retain some for re-investment in the firm. Assume that the firm retains a constant percentage of Et each period, b. This number, b, is the retention ratio. The idea is that the firm retains some earnings and re-invests them in the company so that future earnings are higher. Let R be the return generated on the re-invested earnings. Thus, earnings per share is a perpetually increasing series that is growing at the rate bR each period. Let g=bR be the growth rate. Since the fraction b of earnings per share is retained each period, (1-b) of earnings must be paid out as dividends. Thus: Therefore, it can be seen that g represents the growth rate in earnings per share and in dividends. G is determined by how much the firm re-invests in itself and the rate of retur n on those investments. Now, set the present value of future dividends equal to the current stock price and solve for rs: This is the cost of equity capital by the Gordon Dividend Growth Model. The first term in the equation is the current dividend yield on the stock. This can easily be calculated. However, the growth rate, g, must be estimated. There are two usual methods for this: i) If the firm has a policy regarding the retention rate of earnings then this rate can be used to estimate b. R can be estimated by last periods Return on Equity figure, or an average of the last few years. Since g=bR, you now have an estimate of g. ii) Remember that g is also the growth rate of EPS, for which figures are available. Simply take the percentage increase in EPS over a number of years, convert this into a yearly rate and use this as an estimate of the growth rate. Warning: Basing estimated growth rates on historical data can sometimes lead to conclusions that do not make s ense. This will tend to happen of the firm has recently gone through a period of very high growth (that cannot be expected to last forever) or if the firm has had decreasing EPS (which cannot be expected to last forever). 4) Internally generated funds: In most ways, internally generated funds are the same as equity. Using internal funds to finance and issuing new stock to finance have (almost) the same cost to current shareholders. Internal funds are simply cashflows generated by the firms operations that have not been paid out as dividends. Management is faced with a choice: should they retain these funds and invest them inside the firm, or pay the funds out to shareholders as dividends and let shareholders invest the funds themselves outside of the firm? In order for it to be optimal to retain the funds, the firm must expect to earn more than shareholders could earn investing the money on their own (given the same level of risk). Thus, there is a cost to using internally gen erated funds, equal to the expected return on the outside investment opportunities not taken by shareholders. The return expected by shareholders on an investment of equal risk to their investment in the firm is the expected return on the stock itself. In other words, the cost of internal funds is equal to the cost of common equity (and can be calculated as in (3) above). Internal cash on hand is (as you know from accounting) part of the equity of the firm. Thus, there is no separate term within the WACC calculation that represents internal funds. It would seem that internal funds, although an important source of funding for firms, have no effect on the cost of capital. This would be true except for one thing. The cost of internal funds is the same as the cost of new equity capital except for flotation costs. There are no flotation costs for the use of retained cashflow, while there are for new issues of stock. Thus, the cost of using retained cashflows is actually slightly lo wer. Since internally generated funds and issues of stock are basically the same, the cost of equity capital without flotation costs is put into the WACC formula if all of the projects that the firm is considering can have their equity portion financed through retained earnings. If retained earnings would not be enough to cover the required equity financing, then the WACC will increase because a new stock issue will be needed and this involves flotation costs which are now included in the cost of equity. Therefore, there is a discontinuity in the WACC. Considering one additional project may raise the discount rate for all projects because the additional project may require a new issue of stock. The discount rate for all projects is affected because, in reality, all projects should be evaluated using the marginal cost of capital. Don’t waste time! 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The Labor Party Of Australia - 2448 Words

YEAR 10 COMMERCE My vote would go towards the Labor Party of Australia as they not only agree with my beliefs but also offer a balance between the left wing and right wing of politics, whilst being a bit more to the socialist side. Putting the interests of the working class and the middle class first, they promote equality, aiming to provide a fair go and greater opportunity for all Australians by introducing more public services. As a democratic socialist party, they believe that public needs should be met before the wants of individuals, and that Australians should be compassionate to those in need. Labor also recognises the dangers of climate change and plan to stop it. The Labor party aims to improve the working man’s life by protecting the rights and conditions of the Australian workforce in both the capital cities and regional areas of Australia. The Nationals party have instead, more concentration on the regional residents which seems unreasonable as they only make up less than a third of the population. Labor stands firm to the belief that for working Australians to be free and equal citizens, the need for civil and political as well as economical and industrial rights are undeniable, including the right to strike and to be heard in politics. As opposed to Liberal, Labor intends to protect the minimum wage and weekend penalty rate, as they understand the negative impact which abolishment can cause to some of Australia’s lowest income earners. I would vote for them,Show MoreRelatedThe Australian Government Essay1381 Words   |  6 Pagesabout the Australian government because I really don’t hear much about Australia. It cur rently has a pretty interesting story to tell when it comes to their government. 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Is Morality Relative Benedict And Rachels Essay Example For Students

Is Morality Relative? Benedict And Rachels Essay Is morality relative? Ruth Benedict and James Rachels have opposing views on this conroversial question. Benedict, a foremost American anthropologist who taught at Columbia University (Pojman 370) believes that morality is relative to ones culture and that ones behavior which is deemed moral or immoral is dependent upon cultural norms. Her argument is as such:1. Different cultures have radically different moral codes2. There are no objective moral principles i.e. all moral principles are culturally relativeRachels, a professor at the University of Alabama (Pojman 375) disagrees with Benedict and believes that morality is not relative. Furthermore he holds Benedicts Cultural differences argument to be invalid. One who sides with Bendedict would also agree with a quote from her book Patterns of Culture that morality differs in every society and is a convenient term for socially approved habits. This quote seems logical, simply stated it means cultures approve of rituals and beliefs that the entire society shares. Society defines what is moral at a certain point in time. Morality is adaptive and can shange over time, however it is still dependent upon its culture to decide whether it is accepted or not accepted. For example, in the early twentieth century, pre-marital sex was considered a huge sin and looked down upon with disgrace. A persons entire character was jeopordized if they had participated in pre-marital sex. Today however, although pre-marital sex is not considered virtuous, society does not cast aside those who have sex before marriage. It is considered normal as a matter of fact to have several partners before marriage, that is , if you even decide to get married (another topic that has lost importance over time). Certain cultural norms may change over time, however using the same example (pre-marital) some cultures are just radically different. For instance, some African tribes are known to sew a womans vagina closed when she is young to prevent her from being able to have intercourse before she is married.; If she is not sytill sewn shut on her wedding night, she is cast out and considered a filthy whore. To our culture, this seem entirely too drastic, but to those tribes, this is a ritual that has been practiced throughout their history and is considered a rite of passage when a girl reaches puberty. Benedicts also gives an example to further prove her point that morality and or normality is culturally relative. She gives the example of a man in a Melanesian society who was referred to as silly and simple and definitely crfazy because he liked to share and to help people and do nice things for them. In the United States , these are virtuous qualities. If you are stingy and not helpful you are looked down upon, but in this contrasting society, to share and be helpful is so disgraceful that one is ridiculed for possessing thaose traits or even condemned for them. One who believes that morality is relative could give further example of traits that are despised in one culture but admired in a different culture. History and evolution provide codes of what is accepted in a culture, things such as sorcery, homosexuality, polygamy, male dominance, euthanasia, these things are completely dependant upon its society to define its morality. One who opposes the Cultural Differences Argument would believe that morality is not relative and is shared throughout all cultures. He/she would agree with Rachels, stating that the Cultural Differences Argument is invalid becasuse premis number one, which states that different cultures have radically different moral codes is wrong because the differences are not radical, and there are universal truths. One could point out that all societies have an inate tendency to care for their young and other young in general, or that murder is not accepted in any culture. .u9591791de5946bdd441cfa0b062ce0ba , .u9591791de5946bdd441cfa0b062ce0ba .postImageUrl , .u9591791de5946bdd441cfa0b062ce0ba .centered-text-area { min-height: 80px; position: relative; } .u9591791de5946bdd441cfa0b062ce0ba , .u9591791de5946bdd441cfa0b062ce0ba:hover , .u9591791de5946bdd441cfa0b062ce0ba:visited , .u9591791de5946bdd441cfa0b062ce0ba:active { border:0!important; } .u9591791de5946bdd441cfa0b062ce0ba .clearfix:after { content: ""; display: table; clear: both; } .u9591791de5946bdd441cfa0b062ce0ba { display: block; transition: background-color 250ms; webkit-transition: background-color 250ms; width: 100%; opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #95A5A6; } .u9591791de5946bdd441cfa0b062ce0ba:active , .u9591791de5946bdd441cfa0b062ce0ba:hover { opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #2C3E50; } .u9591791de5946bdd441cfa0b062ce0ba .centered-text-area { width: 100%; position: relative ; } .u9591791de5946bdd441cfa0b062ce0ba .ctaText { border-bottom: 0 solid #fff; color: #2980B9; font-size: 16px; font-weight: bold; margin: 0; padding: 0; text-decoration: underline; } .u9591791de5946bdd441cfa0b062ce0ba .postTitle { color: #FFFFFF; font-size: 16px; font-weight: 600; margin: 0; padding: 0; width: 100%; } .u9591791de5946bdd441cfa0b062ce0ba .ctaButton { background-color: #7F8C8D!important; color: #2980B9; border: none; border-radius: 3px; box-shadow: none; font-size: 14px; font-weight: bold; line-height: 26px; moz-border-radius: 3px; text-align: center; text-decoration: none; text-shadow: none; width: 80px; min-height: 80px; background: url(https://artscolumbia.org/wp-content/plugins/intelly-related-posts/assets/images/simple-arrow.png)no-repeat; position: absolute; right: 0; top: 0; } .u9591791de5946bdd441cfa0b062ce0ba:hover .ctaButton { background-color: #34495E!important; } .u9591791de5946bdd441cfa0b062ce0ba .centered-text { display: table; height: 80px; padding-left : 18px; top: 0; } .u9591791de5946bdd441cfa0b062ce0ba .u9591791de5946bdd441cfa0b062ce0ba-content { display: table-cell; margin: 0; padding: 0; padding-right: 108px; position: relative; vertical-align: middle; width: 100%; } .u9591791de5946bdd441cfa0b062ce0ba:after { content: ""; display: block; clear: both; } READ: The new poor law EssayOne could also argue that using the prusit of truth as an example will show that morality is not relative. Instead, universal morality exists, but not all cultres are aware of it. Rachels gives the example that some societies believe thayt the earth is flat, however we bleieve that the earth is round. Rachels uses this to show that the underlying fact is simply that they disagree. He further states there is no reason to thing that if the world is round everyone must know it. Similarly , there is no reason to thing that if there is moral truth everyone must know it. Philosophy Essays

Current Changes and Challenges in Hospital/Physician Relations

The rate at which hospitals are employing physicians has gone up in many communities because of the need to increase revenue and market share of companies in the healthcare industry.Advertising We will write a custom essay sample on Current Changes and Challenges in Hospital/Physician Relations specifically for you for only $16.05 $11/page Learn More Orange County is the exceptions. For instance, in Boston, non-employed physicians are tightly kept in alignment with the dominant system of the hospital by physician organizations. In California, the law does not allow direct employment of physicians and includes northern part of New Jersey. Most physicians prefer operating alone or in groups based on the community.1 O’Malley, Bond and Berenson argue that the relationship between physicians and hospitals has been weakened by various factors.2 Improved technology has contributed to decrease in reliability of physicians in hospitals. The number of physi cians required in hospitals has been cut down by use of machinery in hospitals. To increase market share, hospitals have begun to employ physicians to cover well-paid special services like orthopedic and cardiac care. Much attention has been drawn to employment of potential physicians in hospitals to enhance the quality and efficiency of medical services. Short-term employment for physician is also offered in hospital organizations. The challenges faced by physicians encourage them to seek for employment in hospitals and other organizations. For instance, they desire to lead better lives, and they incur reimbursement for increased cost of private practice. Primary care Physicians (PCSs) find it hard to be independent because of the rise in overhead costs and flat reimbursement rates. This makes it difficult for significant generation of revenue through ancillary and procedure services.3 According to O’Malley, Bond and Berenson, communication between in and out patient provide rs, even within the same institution is a major challenge. Pre and post hospital coordination of care in hospitals should be well integrated. In the current environment in which services are delivered in exchange for payment of some amount, communication remains a challenge for many hospitals.4 The results of interviews in a Community Tracking Study (CTS) show that the number of physicians employed in hospitals has gone high. In most hospitals and health facilities, the number of part time or unemployed physicians are rebelling against the rules and regulations of the institutions they work for.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Their form of rebellion include failing to participate in medical staff committees that are usually comprised of medical workers, failing to pick emergency calls and establishing their private facilities other than the health institutions they work for . Physicians have to choose between two options, competing with hospitals or being employed in hospitals.5 The voluntary medical staff model that was used to explain the existing relationship between physicians and hospitals has lost its relevance. Although voluntary medical services are still offered by some physicians, large numbers prefer getting employment in hospitals whereas others want to compete with the hospital. Heavy procedure-based specialties and other medical specialists may also be employed. It is clear that there have been significant changes and challenges in the relationship between hospitals and physicians although other challenges still exist.6 Bibliography Casalino, Lawrence, November, Elizabeth, Berenson, Robert, and Pham, Hoangmai. â€Å"Hospital-physician relations: Two tracks and the decline of the voluntary medical staff model.† Health Affairs 27.5 (2008). O’Malley, Ann, Bond, Amelia, and Berenson, Robert. â€Å"Rising Hospital Employment of Physicians: Better Quality, Higher Costs?† Center for Studying Health System Change 136 (2011). Footnotes 1 Ann, O’Malley, Amelia, Bond, and Robert, Berenson. â€Å"Rising hospital employment of physicians: Better quality, higher costs?† Center for Studying Health System Change 136 (2011). P.5. 2 Ibid. p.6.Advertising We will write a custom essay sample on Current Changes and Challenges in Hospital/Physician Relations specifically for you for only $16.05 $11/page Learn More 3 Ann, O’Malley, Amelia, Bond, and Robert, Berenson. â€Å"Rising hospital employment of physicians: Better quality, higher costs?† Center for Studying Health System Change 136 (2011). P.6 4 Ibid. p. 8. 5 Lawrence, Casalino, Elizabeth, November, Robert, Berenson, and Hoangmai, Pham. â€Å"Hospital-physician relations: Two tracks and the decline of the voluntary medical staff model.† Health Affairs 27.5 (2008). P.1. 6 Ibid. p.1 This essay on Current Changes and Challenges in Hospital/Physician Relations was written and submitted by user Taraji Whitfield to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

International Pressure and Sanctions

International Pressure and Sanctions Introduction The apartheid system, which was in place from the late 1940s to the early 1990s in South Africa, was one of the worse examples of discrimination and racism by a government against its citizens. This system divided South Africans into first class and second-class citizens based on their racial orientation.Advertising We will write a custom essay sample on International Pressure and Sanctions specifically for you for only $16.05 $11/page Learn More The minority white South Africans were afforded all the political privileges and given the status of first class citizens while the other races were treated as inferior. The South African government tried to justify this discriminative system to its citizens and the international community. However, local and international condemnation of the system grew over the 1960s with calls been made for the government to end this oppressive system. The relative importance of the domestic and international in brin ging an end to apartheid is debatable with some people arguing that black South Africans political participation in anti-apartheid movements played the biggest role while others argue that actions by the international community where the most significant in dismantling apartheid. This paper will argue that international pressure and sanctions were the most important factors in ending apartheid in South Africa. How International Action Contributed to Ending Apartheid The economic sanctions imposed on the apartheid government led to economic difficulties that made the apartheid system unfavorable. The goal of imposing sanctions against South Africa was to reduce the economic welfare of the rich white minority in the country and hence diminish the willingness of the country to persist in maintaining apartheid. In spite of the countrys mineral wealth and valuable geographic position, the international community was not willing to downplay apartheid (Thomson 114). Western powers encourag ed their citizens to disinvest in South Africa. This disinvestment by capital by foreigners led to a significant reduction in the wealth of the white minority therefore raising the costs of apartheid for the group that had benefited from the system. Kaempfer and Lowenberg note that the economic sanctions against South Africa resulted in a reduction of the GDP of the country (377). These negative economic outcomes led to a change in the behavior of the South African government in the desired direction. Economic sanctions contributed in the dismantling of apartheid by reducing the economic welfare of the white minority who were the main beneficiaries of the apartheid system. The isolation brought about by international pressure decreased government efficiency and the local support for apartheid. Led by the United Nations, many countries condemned the policy of apartheid and called for its end. Lulat (364) notes that many newly independent African countries put pressure on the Western powers to take action against the South African regime.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Efforts by the international community to pressure the South African Government to end apartheid were in play as early as 1963 when the US sort ways to induce the South African government to remove the evil business of apartheid from the continent of Africa (Duncan 38). The US and some European countries restricted the granting of travel visas to high-ranking political and military personnel within the South African government. In 1977, the US government recalled its Ambassador to South Africa and subsequently joined the rest of the world in condemning apartheid (Thomson 113). In addition to the effect that international pressure had on the white South African community, it also raised the expectations of black South Africans. International pressure demonstrated to the black com munity that the rest of the world supported their efforts towards ending apartheid. It showed that the international community supported the determination of the Africans to win full status and dignity in their country. The government therefore had a harder time maintaining and defending apartheid institutions in light of this anti-apartheid sentiment from the international community. International efforts against the Apartheid regime led to the imposition of an arms embargo that reduce the military capability of the South African government and increased the cost of equipping the military. Due to the perceived injustices of apartheid, the non-White groups in the country founded protest movements to fight for equal rights and freedoms with the whites. The government reacted aggressively to this protests using military force to suppress any opposition. Duncan observed that the growing government oppression in South Africa could only be countered by external pressures (42). The intern ational community therefore intervened to stop the government from getting the arms that it needed to form a well-equipped army to counter this growing African militancy. Its efforts to acquire this arms from the international market where thwarted by a UN Security Council resolution in 1977 that banned the shipment of arms to the South African Government. The United States, which is a major weapons trader in the world, adopted a complete embargo of military equipment to South Africa. Duncan notes that the US stopped supplying the South African government with all lethal goods and even terminated the sale of all military spare parts to South Africa (115). The South African government tried to counter this arms embargo by manufacturing its own arms. However, the locally produced weapons were costly and of a lower quality to those available in the international market. In addition to this, the cost of research and production led to financial strain by the government as funds were dive rted from important public institutions. This decreased the popularity of the apartheid policy even within members of the White population.Advertising We will write a custom essay sample on International Pressure and Sanctions specifically for you for only $16.05 $11/page Learn More International pressure forced the South African government to enter negotiations with the oppositions groups that were demanding political representation and justice. The apartheid policy had denied the non-White population any political power and the white minority were unwilling to reach a compromise. The prominent anti-apartheid South African cleric, Archbishop Desmond Tutu declared that while the objective of the African opposition movements was negotiation, the apartheid regime could not get to the table without concerted international pressure (Lulat 364). Through this pressure, the government was forced to listen to the troubles of the majority and react to them in a favo rable manner. Without the involvement of the international community, the South African government had no incentive to negotiate with its non-White population. Conclusion This paper set out to argue that international pressures and sanctions played the most significant role in ending apartheid in South Africa. To this end, it has highlighted the ways in which the international community contributed to the collapse of apartheid. Through international pressure and the use of punitive measures such as investment sanctions and trade restrictions and embargoes on supply of key goods, the international community was able to accelerate the ending of apartheid in South Africa. If the international community had not involved itself in South Africas affairs, the oppressive apartheid system would have continued for longer. Because of this international pressure and sanction, South African abandoned apartheid and adopted a system that ensured majority rule based on justice and equality. Duncan , Patrick. â€Å"Toward a World Policy for South Africa†. Foreign Affairs 42.1 (1963): 38-48. Web.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Kaempfer, William and Lowenberg Anton. â€Å"A Model of the Political Economy of International Investment Sanctions: The Case of South Africa†. KYKLOS Journal 39.3 (1986): 377-397. Web. Lulat, Yuni. United States Relations with South Africa: A Critical Overview from the Colonial Period to the Present. Peter Lang, 2008. Print. Thomson, Alex. â€Å"The Diplomacy of Impasse: the Carter Administration and Apartheid South Africa†. Diplomacy Statecraft 21.1 (2010): 107–124. Web.

The Differences between Markets and Central Planning Literature review

The Differences between Markets and Central Planning - Literature review Example The Coase theorem states that the problem of externalities will be resolved through bargain when there are no transaction costs and that property rights are well defined, the theorem states that firms in conflict will bargain and one firm may acquire the property right of the other firm however the assumption is that there are no transaction costs. This theory defines the existence of firms in the market economy in that despite the existence of externalities and conflict, firms in a market economy will, in the long run, will attain equilibrium through bargain and this will ensure proper allocation of resources and property rights The price elasticity of demand is a measure of the responsiveness of the quantity demanded as a result of change in the price of a good or service, high price elasticity of demand means that when price is increased by one unit then demand will decline by one or more units, there are those goods and services with inelastic, elastic and perfect elasticity of demand. Income elasticity is also a measure that aids in determining the responsiveness of demand to changes in the price of a product, it measures the change in demand of a product as a result of an increase or decrease in income. In the last 10 to 15 years most firms have experienced elastic price elasticity of demand, this has been attributed to the fact that there are many firms in the market and also existence of substitutes in the market, as a result of this an increase in the price of a good will lead to a decline in the demand for that good due to existing substitutes and alternative.

Societal Views On The Role Of Women Essay Example | Topics and Well Written Essays - 1000 words

Societal Views On The Role Of Women - Essay Example One would suggest that the actions of these women throughout the two works might have come to hurt their societies because had all the women in these societies acted as they did, then it is likely that the entire social order might have collapsed. Nevertheless, this did not happen and in the case of Sula, she was looked upon as a reference by other members of the society and her example ensured that all the people live moral lives so that they could not end up like her. Despite this, after her death, it is noted that the society of The Bottom quickly disintegrated into one of chaos. Hedda is a woman who believes in the beauty and freedom and does not believe in abiding by the constraints placed on individuals by their societies. It is for this reason that she chooses to convince Lovborg to commit suicide as a means of ensuring that he does not remain a rival to her husband. However, after Lovborg does indeed commit suicide, and her actions are discovered by Judge Brack, she confesses her view of life and her weaknesses to him. However, knowing that Brack might potentially be capable of blackmailing her as long as she is alive, she chooses to commit suicide. She shows her strictly independent spirit and her need to ensure that she retains her freedom no matter the cost. Therefore, both Hedda and Sula are extremely strong and independent women who do not bow to societal conventions and instead live their lives as they want. Their actions are those of women who yearn for the freedoms that the men in their societies enjoy.