• Why does a corporation sell bonds?
• A corporation sells bonds to raise money.
– It is a way of borrowing money from people
(investors) to develop and operate the company.
1

CH 3, Section 2 p. 68
Terms: listed in front of section
• Merger
• 68 a combination of two or more businesses to form one firm
+ =

• United Continental.
• This merger was to save both airlines from total bankruptcy and shutting down after the terrorist attacks of 2001.
• To suit both sides in the merger a “new” livery was created.
• Every plane in both fleets had to be repainted.
Not a cheap thing to do .

• United Continental Airlines.
• EC: On your CN, list two reasons for the big expense in changing over the livery:
– When a plane is not flying, it is not making money.
– Paint crews and materials cost a lot of money.

• 68 a report showing a business’s
– Sales
– Expenses
– Earnings and profits
– Over a period of time
• Quarterly (3 months)
• Annually (12 months)

• 68 gross income (revenue) minus:
– Expenses
• Taxes
• Cost of goods (inventory)
• Wages and salaries
• Interest payments

• 69 a non-cash charge the firm takes for the general wear and tear on its capital goods.
– May be deducted from taxes if used as part of one’s business.

• 69 the sum of net income and non-cash charges (depreciation).
• The true amount of profit (cash) made by the company’s operations.

• 71 two more firms that produce the same good or service join forces.
• Chase National Bank and the Bank of
Manhattan =>
– Chase Manhattan Bank
– EC: Why is the man crying?
– When the companies merge rates for their services will likely go up (less competition.)

• 71 firms involved in different steps of manufacturing or marketing join forces
• Main motivation is to
– Cut costs
– Avoid problems if a supplier
• Goes out of business
• Raise prices
• Goes in with a competitor
• Andrew Carnegie started US Steel, but
– Merged with an iron ore company to gain a cheaper price on iron.
– Merged with a rail company to get cheaper prices on transportation

• Which type of merger was that of Continental
Airlines and United Airlines? Why?
• Horizontal
• Because both companies do the same type of business.

• 71 a firm having at least four businesses making unrelated goods and services
• Diversification:
– Ex.: RJ Reynolds (tobacco/cigarettes)
• Sea-Land (containerized shipping)
• KFC (fast food)
• Del Monte (fruit and vegetable processing)
• Heublein (wine and distilled spirits)

• Korea
• Samsung Group
• GS Group
– Hyundai Heavy Industries
– Lotte Group
• Japan
– Lotte Group
– Panasonic
– Mitsubishi
– Itochu Corporation
– Sony
– Sega Sammy Holdings
• EU
– ThyssenKrupp
– Siemens AG
– Bayer
– Airbus
– Contrive Group
• US
– Fortune Brands
– The Walt Disney Company
– Koch Industries
– General Electric
– Berkshire Hathaway
– 4Kids Entertainment

• 72 aka ‘Multinational Corporation’, MNC’, ‘Transnational’
• A business that has manufacturing or service operations in a number of different countries.
– Microsoft, US
– Ford, US
– Coca Cola, US
– Gap, US
– Toyota, Japan
– Mitsubishi
– Sony
– Nabisco, UK
– British Petroleum (BP), UK
– Royal Dutch Shell, The Netherlands

CH 3, Section 3 p. 75
Terms: listed in front of section
• Non-profit organization
• 75 Operates like a business
• Promotes a collective interest of its membership
• Does not seek financial gain for its owners from its operations.
– Schools
– Churches
– Hospitals
– Welfare groups
– Adoption agencies

• 76 aka Co-op
• A voluntary association of people formed to carry on some kind of economic activity that will benefit its members…..
– Cut costs by group purchases
– Special deals for members
• Goods and services
• Types include
– Consumer co-op
– Service co-op
– Producer co-op

• 76 A service co-op
• Members usually employees in
– A similar job field
– A government agency
– A large corporation
• deposit money in it like a bank
– Get easier/faster loan terms and interest

• 76 an organization of workers formed to represent workers.
– Hears and presents members’ interests in various employment matters.
• Collective bargaining
• Union negotiates with company over member’s issues, including…..
– Pay
– Work hours
– Health care coverage
– Life insurance
– Vacations
– Job related matters

• 77 a group of people in a specialized occupation that works to improve the
– Working conditions
– Skill levels
– Public perception of the profession
• Samples include:
– American Medical Association
– American Bar Association
– American Federation of Teachers

• 78 promotes the welfare of its members (business) and of the community
• national, state, and local
• Activities include:
– Promotion of business
• Opportunities
• Generation
– Education
– Neighborhood charity/assistance
– Lobbying government for favorable business legislation

• 78 a non-profit organization sponsored by local businesses
• Provides general information on companies
• Maintains records on
– Consumer questions
– Consumer complaints
• Sometimes offers consumer education programs

• 79 Any company that offers vital products or services to the public
– Privately owned
– Municipal-owned
• Include:
– Water,
– Natural gas
– Electricity
– Public transportation
– telephone
• Are regulated by the government to assure:
– Smooth, efficent operation
– Availability to all members of the public
– Reasonable rates
• Lower costs to low-income members

CH 3 sect 2 Assessments: Checking for
Understanding
• 1
• Mergers can diminish costs and increase buying power

• 3
• A firm can reinvest revenue from sales into the company:
– New plants
– Equipment
– technologies

• 4
• Grow faster
• Increase efficiency
• Acquire new product lines
• Eliminate rivals
• Change corporate image

• 5
• Horizontal:
– Two or more firms that produce same product or service merge
• Vertical:
– Firms in different steps of manufacturing or marketing merge

CH 3 sect 3 Assessments: Checking for
Understanding
• 1
• Consumer:
– Buy goods/services in bulk
– Offer members reduced prices
• Service:
– Provide only services instead of goods
• Producer
– Help member promote/sell products

• 3
• Community/civic organizations:
– Provide goods/services,
– Promote the common good
• Cooperatives:
– Carry on activities that benefit members
• Labor, Professional, and Business organizations:
– Promote interests of members
• Government:
– Regulate the economy

• 4
• Direct:
– Police and fire protection
– Schools
– Court systems
• Indirect:
– Regulation of public utilities
– Regulation of quasi-monopolies
– Subsidies

Images, p. 69
• question:
• The cash flow
• + what does it make possible for the company?
– Investment in
• new plant
• Equipment
• technologies
• + what does that help generate for the company?
– Sales and services
– earnings

Images, p. 72
• Question
• + Can a multinational BE a conglomerate (and vice versa)?
Explain.
• Conglomerate:
– has at least four business
• Multinational
– Has manufacturing or service organizations in a number of different countries.
• Yes
– If the conglomerate makes goods and services in other nations
– If the multinational makes diversified goods and services.

• Define a vertical merger and a horizontal merger.
– A horizontal merger
– is when two or more firms that produce the same kind of product join forces.
– A vertical merger
– takes place when firms involved in different steps of manufacturing or marketing come together

Which term best suits Berkshire Hathaway? Explain
(use your sheet if you have room)
• Horizontal merger
• Vertical merger
• Conglomerate
• Answer:
• Conglomerate, as it owns many unrelated businesses with vastly disparate products and services.

Image, p. 76
• Question
• Consumer cooperative
– Buys bulk goods on behalf of members
• Service cooperative
– Offers members various services at lower costs
• Producer cooperative
– Helps members promote or sell their products and services

Image, p. 77
• question
• Because a co-op buys goods in bulk, it can offer its members reduced prices.
• + Name a well-known consumer co-op in your city…..(remember, members pay a membership fee)
• Costco
• Sam’s Club

• Why do businesses merge? (2)

• You and up to one partner create a company around a real type of business. (26 EC possible)
– Company name
– ID product
– Incorporate the graphic organizer on p. 64 with your own information.
• write how each department would be involved in the product.
– Make up circumstances, but be accurate and appropriate.
• Ex.:
• Peach Corporation (2)
• Laptops (2)
• In one box (there are 11 (x2 pts) : Payroll -- cuts pay and bonus checks to various employees
– This example, so far, just earned 6 EC points for the individual/pair of students