Ever Thought About Operating A Franchise?

Tired of not getting paid what you’re worth (or not paid at all) and want to start your own, already-proven business? That’s what is intriguing about franchising. Pick a brand, pay your money, take your chances, and then you’re an entrepreneur. Running day-to-day operations and turning a profit is another matter, of course. However, success starts with picking the right system, because there are roughly 3,500 franchises to choose from.

Questions:

1. The video talked about the top five types of franchises, but what are the top 10 actual franchise companies? (See http://www.entrepreneur.com/franchise500/index.html)
2. Look at the Forbes article. What four variables supported their recommendation for the best investments in franchises?
3. Now look at the Forbes “In Pictures: The Top 20 Franchises To Start,” which is hyperlinked in the article. Which one interests you and why? Use your accounting knowledge to explain. Discuss the risks and challenges involved.

Source: MSNBC video (2011), Top Five: Franchise Trends, Dec. 18 (Retrievable online at http://www.openforum.com/videos/top-five-franchise-trends)

Davis, L. and M. Farrell (2011). The Top Franchises for the Money, Forbes.com, January 18 (Retrievable online at http://www.forbes.com/2011/01/18/best-franchises-for-the-buck-entrepreneurs-finance-franchise.html)

A Feel-Bad Ending: Swell the Music for Rudy

If you look up memorable quotes by Rudy Ruettiger, they exact all the inspirational feelings you can muster about “acting on your dreams.”

One of my favorites does not have such a pretty answer, now:

–If you knew you couldn’t fail, what would your goals be?

Sadly, the answer might be:

–To attempt a “pump-and-dump scheme.

Unfortunately, failure in achieving the goal, although not confirmed or denied, followed former Notre Dame football player, Daniel “Rudy” Ruettiger – the subject of the 1993 underdog movie “Rudy,” who created a sports drink company as a shell for a “classic pump-and-dump scheme.” The Securities and Exchange Commission says that the scheme bilked investors out of more than $11 million.

Questions:

1. What was the penalty imposed by the SEC settlement? Discuss whether you believe this was equitable.
2. How long did the scheme last? Look at the ACFE website (www.acfe.com). How does this compare with the length of the average pump-and-dump scheme, according to the 2010 Report to the Nation?
3. What product did the company claim to be in direct competition with? According to the article, was this the only thing that lured investors into the scheme?

Source:

Divito, N. (2011). Feel-Bad Ending for Hero of “Rudy” Movie, Courthouse News Service, Dec. 19 (Retrievable online at http://www.courthousenews.com/2011/12/19/42343.htm)

Treadway, D. (2011). Rudy Ruettiger Stock Scam: SEC Files Complaint Against Subject Of Famous Sports Movie, Huffington Post, Dec. 19 (Retrievable online at http://www.huffingtonpost.com/2011/12/19/rudy-ruettiger-stock-scam_n_1158017.html)

Risky Bonds? Where do you put your money?

With bond yields so low and the potential downgrading of bonds, is it a good idea to substitute dividend-paying stocks for bonds? Some would say yes, since dividend-paying stocks yield more than some bonds, and have more upside potential. But there’s no getting around the fact that stocks, including dividend-paying stocks, are generally more volatile than bonds. Substituting dividend-paying stocks for bonds will lead to a higher risk portfolio.

Question:

1. In this video, the expert recommended the Asian Telcos?  What types of stocks is he referring to?

2.  How do you calculate the dividend yield ratio for a stock?  What do these experts say that this should be compared against when making this decision to switch to dividend paying stocks?

3. Why did the S & P downgrade the outlook for fiscal challenges facing the U.S. on April 18?  What effect will this have on bonds?

4.  What are the risks of putting your money in dividend-paying stocks as compared to bonds?

Source:

CNBC Video. (2011). Investing in High Dividend Yield Stocks (Retrievable online at http://video.cnbc.com/gallery/?video=1888416221)

New York Rules That It Is OK To Resell Life Insurance Benefits

New York’s top court ruled Wednesday that state law allows people to buy life insurance policies and immediately sell them to investors who make money when the insured person dies. The Court of Appeals, in a 5-2 ruling, said the practice is legal in New York even where the policy was obtained solely for that purpose. The case involved transactions before the law was amended by the Legislature last year to regulate so-called “stranger originated life insurance,” or STOLIs. Those changes took effect in May. The amendment prohibits intermediaries, without any personal interest in an insured individual, from arranging or planning in advance for someone to obtain a policy and designate the intermediary as beneficiary. It also prohibits such transfers, or life settlement contracts, for two years after a policy is issued.

The court majority concluded that state law permits an insured adult, acting “on his own initiative,” to get a life insurance policy for the benefit of any person, firm, association or corporation he or she chooses.  According to the American Council of Life Insurers, more than 30 state have enacted laws in the last few years to curb or regulate the practice.

Questions:

1.  What is “dead peasant” insurance, why has it been in the news in recent years,  and what are some recent regulations to it?

2.  Why do you think the court included a two year waiting period?

3.  If a person obtained a life insurance policy for the benefit of a non-profit organization, how should the non-profit organization account for it? Discuss.

 

Source:

Staff. (2010). New York Court OKs Reselling Life Insurance, Syracuse.com, November 17. (Retrievable online at http://www.syracuse.com/news/index.ssf/2010/11/new_york_court_oks_reselling_l.html)

Investing in Art: How About Some Melted Clocks?

There has been recent momentum in art market investments, despite the recession. The art market is scouring the world for undervalued works by major artists and museums are seeking new material for blockbuster shows.  Amid this, artistic works by Dalí and others are getting longer looks. Interestingly, few artists could reap more from a late-period revival than Dalí. The artist created at least 1,200 paintings between his art-school years in the 1920s and his death in 1989.

Questions:

1. The article mentions that over the past five years, the average price paid at auction for a late-period Dalí has risen from $108,634 to just over $1 million, based on reports by Art Research Technologies, a New York-based consulting firm that tracks auction prices.  Using this information, what percentage increase is this?

2.  As the video mentioned, many corporations invest in these artworks.  Use the information in Question 1 and assume that these average numbers  represent a sale of one Dalí painting from one corporation to another corporation.  What journal entry would the selling corporation make?

3. Use the information in Question 1 and assume that this is an exchange of one corporation selling a Dalí painting to another corporation.  What journal entry would the buying corporation make?

Sources:

Crow, Kelly. (2010). The Lust for Late, The Wall Street Journal, August 13. (Retrievable online at  http://online.wsj.com/article/SB10001424052748704017904575409732613402068.html?mod=WSJ_hp_mostpop_read#project%3DDALI-TL100805%26articleTabs%3Darticle)

WSJ Video with Kelly Crowe (2010). The Lust for Late, August 13. Retrievable online at  http://online.wsj.com/article/SB10001424052748704017904575409732613402068.html?mod=WSJ_hp_mostpop_read#project%3DDALI-TL100805%26articleTabs%3Dvideo)