Remember Driver’s Ed? Things have Changed!

Mercedes-Benz has long been at the forefront of creating safer cars and now they are aiming to create safer drivers. In December 2011, the company opened the its first driving school in the U.S. called Mercedes-Benz Driving Academy. Mercedes has three more in Europe). This school is located on Third Street in downtown Los Angeles. Open to drivers of all ages, its primary focus is teenagers, who want to get their California driver’s licenses and drive Mercedes in the process. The cost of the academy’s integrated program is $1,390, which includes 15 hours of online training, 10 hours in the classroom, five hours of workshops and 16 hours of behind the wheel coaching. The driving schools that the Bloomberg video showed are typically more expensive and generally focus on defensive driving skills of more experienced drivers.

Questions:

1. Based on the video, what types of return investments do you think the luxury car makers are receiving from their “driving schools”?
2. What types of costs would be involved in the luxury car driving schools shown in the video?
3. Go to http://exoticsracing.com/ and customize your ultimate driving experience. What was the most interesting thing you noticed about this company?
4. For the Mercedes-Benz Driving Academy, what would be some fixed costs and what would be some variable costs? Can you think of any mixed costs that the company might have? Would these be different for Exotics Racing School?

Source:

Bloomberg Video. (2012). Extreme Test Drives, May 10.

Jorrey, K. (2012) Luxury car maker sets new standard for driving school. The Acorn, April 26 (Retrievable online at http://www.theacorn.com/news/2012-04-26/Business/Luxury_car_maker_sets_new_standard_for_driving_sch.html)

Salute to Tax Day

According to Adam Davidson (et. al), if economists ran the tax system, there would be virtually no exemptions or loopholes. But instead, he submits, businesses, rich people, Congressmen and attorneys spend a shockingly large amount of time lobbying for tax breaks or exploiting the loopholes that exist. The tax code in 1913 was 27 pages long and has grown to 5,296 pages as of last year.

Questions:
1. According to Mr. Davidson’s (et.al) survey, what is the easiest way to cheat on your taxes? Discuss.
2. Discuss what you found to be the most interesting deduction that a taxpayer attempted to take and why.
3. According to the article, what percentage of taxes did the IRS collect in 2006. If the 14% shortfall amounted to $385 billion, how much in dollars did the government collect in 2006?
4. What was the reason for the shortfall in collections?

Source:

Davidson, A., J. Goldstein, C. Kenney, and D. Kedmey. (2012). What’s the Easiest Way to Cheat on your Taxes. The New York Times, April 3 (Retrievable online at http://www.nytimes.com/2012/04/08/magazine/whats-the-easiest-way-to-cheat-on-your-taxes.html?src=me&ref=magazine)

Fed Up with Scorched-Earth Tactics

A lot of people and companies are upset with Amazon these days. At the end of February, The Educational Development Company (EDC) announced that it would remove all of its titles from the online retailer’s listings because of their predator selling practices. Amazon would buy EDC’s books from a distributor and discount them to the bone. The problem is that this creates problems with other retailers who want to carry the company’s titles, as well as with EDC’s network of independent sales agents, who market its books from their homes.

Questions:

1. According to the article, what other company removed its e-books from Amazon?
2. Assume that you own a small publishing company. Do a cost/benefit analysis of selling books on Amazon. Discuss your results in terms of short-term and long-term profitability.
3. Explain how you think that EDC sales model with its 7,000 “consultants” might work and how they record their revenue for these type of sales.

Source:

Streitfeld, D. (2012). Daring to Cut Off Amazon. The New York Times, April 15 (Retrievable online at http://www.nytimes.com/2012/04/16/business/media/amazons-e-book-pricing-a-constant-thorn-for-publishers.html?_r=1&hp)

The Economic Downturn Hits J.C. Penney’s Hard

About 600 employees were laid off at the corporate headquarters of J.C. Penney this week. Under the leadership of the new CEO, Ron Johnson, one of its three call centers in Pittsburgh, PA, will also be closed later this year, which eliminates 300 more jobs.

Questions:

1. What type of business is J.C. Penney? Research the company. How old is it and what characterizes its financial situation over the last 5 years?
2. If the 600 employees that were laid off make up 14% of the staff at corporate headquarters, how many employees did corporate headquarters have before the cuts?
3. What are some of the strategic plans that the new CEO has announced? Explain the logic of each in terms of helping the bottom line.

Source:

Clifford, S. (2012). J.C. Penney Cuts Headquarters Staff. The New York Times, April 5 (Retrievable online at http://www.nytimes.com/2012/04/06/business/jc-penney-cuts-headquarters-staff.html?ref=business)

Copyright Infringement?

On Wednesday, the Second Circuit Court of Appeals reversed a lower court’s decision to throw out a five-year old lawsuit asking for $1 billion and filed against YouTube by Viacom, as well as other media companies. This copyright infringement suit has become a symbol of the clash between media companies and those competing with them, such as YouTube, who allows users to upload clips by users. The Circuit Court indicated that “a reasonable jury could conclude [whether] YouTube had knowledge or awareness” of copyright infringement “at least with respect to a handful of specific clips.”

Questions:

1. How are copyrights reported in the financial statements?
2. If the suit for $1 billion is awarded, how would it be recorded, as far as a journal entry? Do you think this award will become a reality? Why or why not?
3. How should YouTube record any revenue gained from the Viacom deal that lets users rent movies on the YouTube site?

Source:

Stetler, B. (2012). Appeals Court Revives Viacom Suit Against YouTube, The New York Times, April 5 (Retrievable online at http://mediadecoder.blogs.nytimes.com/2012/04/05/appeals-court-revives-viacom-suit-against-youtube/?ref=business)

Budget Cut Alternatives?

For generations, community colleges have been seen as a low cost education for many. However, starting this summer, Santa Monica College is going to offer courses that are typically hard to enroll in (due to greater demand and the lack of student seats) at a premium price structure. This two-tiered price structure is raising concerns about the role and obligations of community colleges and unfair exclusion of the poorest students, which creates an imposed lower and upper class of students.

Questions:

1. Explain what has led to this idea. Do you think it is a good one? Why or why not?
2. What percentage increase would be applied to the more expensive courses?
3. If you were brainstorming about ideas to counteract budget cuts and avoid this two-tier system, what are some of the ideas you would suggest?

Source:

CNN.com Video. (2012). Students Pepper-Sprayed at Protest. April 4 (Retrievable online at www.cnn.com/video)

Medina, J. (2012). Two-year College, Squeezed, Sets 2-Tier Tuition, The New York Times,March 29 (Retrievable online at http://www.nytimes.com/2012/03/30/us/community-college-to-charge-more-for-top-courses.html?_r=1&hp)

I Know Where You Live and I Know What you Donated Last Summer!

No, it’s not a new horror flick, but it is scary. As private schools, like Upper East Side preschool hit the upper limits of what they can charge for tuition (or $21,000 per year), fund raising has become more intense and aggressive. In fact, the “development offices” for these schools are mining online data for details about parents’ homes, luxury cars, private planes, stock holdings and donations to other charities.

Questions:

1. What percentage of their time do the heads of the private schools surveyed spend on fundraising? Comment.
2. Explain why Rae Goldsmith sees the strategy of going after the richest parents in a school as short-sighted.
3. Based on the “back-of-the-envelope assumption” mentioned in the article, what percentage do families with more than $5 million in assets give away annually?

Source:

Anderson, J. (2012). Private Schools Mine Parents’ Data and Wallets. The New York Times, March 26 (Retrievable online at http://www.nytimes.com/2012/03/27/nyregion/private-schools-mine-parents-data-and-wallets.html?pagewanted=1&_r=1&ref=todayspaper)

Here comes Scoot!

Singapore Airlines’ wholly-owned budget carrier Scoot will begin flights into China, with flights between Singapore and Tianjin during August. Two more Chinese destinations are also being considered, but the capital of Beijing is not one of them.

Questions:

1. How much is S$88 in U.S. dollars? How does this compare to the fares offered by Southwest Airlines?
2. What is being used by consumers as the reference price for the company in helping to set prices?
3. Compare Scoot’s model to Hong Kong Airline’s new niche model. What are some of the variables that cost analysts must take into consideration for these two models?

Source:
Cnn video.com. (2012). Asia’s low-cost carrier boom (Retrievable online at http://www.cnn.com/video/#/video/international/2012/03/14/business-traveller-asia-low-cost-airlines.cnn)

Tan, V. (2012). Scoot to Launch Tianjin-S’pore Flights in August. Channel News Asia.com, March 27. (Retrievable online at http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1191503/1/.html)

Big News at Amazon: Fulfillment Robots

Amazon.com Inc said on Monday it agreed to buy Kiva Systems Inc for $775 million in cash, a deal that will bring more robotic technology to the e-commerce company’s giant network of warehouses.

Questions:

1. What other companies use this kind of robot technology?
2. Discuss the trend of Amazon’s fulfillment costs and what they would mean in terms of net income and taxes.
3. Discuss in general how Amazon would account for the $775 million acquisition and the types of journal entries it would make.

Source: Barr, A. (2012). Amazon’s Kiva Systems Acquisition To Put Robots To Work, Reuters.com, March 19 (Retrievable online at http://www.huffingtonpost.com/2012/03/19/amazoncom-kiva-acquisition_n_1365512.html)

Taken for a Ride When Trading in a Car

Under the Dodd-Frank financial reform act, the Federal Trade Commission (FTC) is now going after auto dealers that imply to customer that they have no remaining debt obligation for trade-ins. Five dealers in four states (South Dakota, North Carolina, Connecticut and West Virginia) have already agreed to settlements that order them to stop running ads promising to pay off a customer’s loan on a trade-in.

Questions:

1. Explain the practice that the FTC is putting a stop to by using the journal entries that a dealer would make.
2. What percentage of new-car shoppers in 2011 traded in a car on which they had negative equity? Develop an example of this using T-accounts from the point of view of the car owner.
3. The FTC is accepting public comments on the proposed dealer settlements until what date?

Source: Singletary, M. (2012). Trading in a car? Don’t get taken for a ride. The Washington Post, March 17 (Retrievable online at http://www.washingtonpost.com/auto-dealers-take-trade-in-owners-for-a-ride/2012/03/12/gIQAT2sRJS_story.html)

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