Pressure Packages

Pressure from financial  institutions and Treasury officials undermined an effort to  limit executive pay at seven companies rescued with taxpayer  money, a new government audit showed on Tuesday.  The official overseeing executive pay for bailout firms  limited cash compensation and made some reductions in pay, but  still approved compensation packages in the millions, the TARP  (Troubled Asset Relief Program) inspector general said in the  report. Former U.S. pay czar Kenneth Feinberg approved pay packages  worth $5 million or more from 2009 to 2011 for 49 top earners,  the report said.

Questions:

1. What was the significant leverage that the article said the companies had over Feinberg?  Do you agree that this would be significant enough to compromise?  Why or why not?

2. What was Feinberg’s title? What does TARP stand for?

3. Who were the companies involved? Which of these have exited the TARP program?

Source:

Reuters Staff. (2012). Bailed-out Companies Pressured TARP Pay Czar to Keep Executive Pay High: Report, Jan. 24 (Retrievable online at  http://www.huffingtonpost.com/2012/01/24/tarp-executive-pay_n_1226485.html?ref=business)

 

Verizon Posts New Numbers

Verizon Communications on Tuesday reported a net loss of $212 million in the fourth quarter of 2011, despite rising iPhone sales and revenue growth in its wireless business, compared with net income of $4.65 billion in the same quarter a year ago, the company said Tuesday. The loss was primarily because of the impact of previously announced noncash pension charges, the company said.

Questions:
1. What percentage drop in net income existed between 4th quarter 2011 and 4th quarter 2010?

2. What are noncash pension charges?

3. Discuss how the deal that Verizon made with cable companies will advance its offerings strategically.

4. What percentage increase of new wireless subscribers did Verizon gain over the last quarter of 2011?

Source:

Chen, B.X. (2012) Verizon Posts Loss on Pension Charges, Jan. 24 (Retrievable online at http://www.nytimes.com/2012/01/25/technology/verizon-posts-loss-on-pension-charges.html?_r=1&ref=business)

Insulting Discounts: The Costa Concordia Saga

The owners of the Costa Concordia are offering survivors of the disaster a 30 percent discount off future cruises as they battle to stave off law suits expected to cost hundreds of millions of pounds. As the body of a 12th victim was found inside the hull of the £370 million, 1,000 ft vessel, survivors call the discount offer “insulting.” The most recent victim was found wearing a life jacket on the fourth deck, close to a muster station.

 

Question:

1.  What was the difference between net income for Carnival from 2010 to 2011?

2.  What did Carnival attribute this drop in income to?

3.  What is Carnival’s connection with the Concordia and why is Carnival seeing a downturn in bookings this year?

 

CNN Video. (2012). Carnival Cruise Lines Takes Financial Hit, Jan. 16 (Retrievable online at http://www.cnn.com/video/#/video/world/2012/01/16/pkg-boulden-cruise-ship-business-after-concordia.cnn)

 

Duffin, C., R. Mendick, N. Squires, and V. Ward (2012). Costa Concordia: ‘Insulting’ Cruise Offer to Survivors, The Telegraph, Jan. 24 (Retrievable online at http://www.telegraph.co.uk/news/worldnews/europe/italy/9030212/Costa-Concordia-insulting-cruise-offer-to-survivors.html)

We Did Everything Right and Still Lost Our Business: Five Failing Businesses in 2011

It has been another tough year for small businesses. According to the National Federation of Independent Businessesm one in four believes the biggest problem is weak sales. Issues of timing, cash, and a lack of realistic estimates also add to the challenges they face.

Questions:

1. After reading the article, what advice would you offer to anyone thinking about starting a business in 2012?
2. What was the main issue that Michelle Lewis mentioned that would have helped her business model and why is it important to you as a future accountant?
3. Which one of the five businesses mentioned do you think could have been viable with adequate advice from a financial advisor or accountant? Why?

Source:

Zimmerman, E. (2011). 5 Businesses That Failed to Survive Trials of 2011, The New York Times, Dec. 28 (Retrievable online at http://www.nytimes.com/2011/12/29/business/smallbusiness/five-businesses-that-did-not-survive-2011.html?pagewanted=1)

Amy’s Kitchen in the Small Business Spotlight

Amy’s Kitchen started in 1987 as one of the first frozen food companies for vegetarians. Naming the company after their daughter, Amy, Rachel and Andy Berliner worked as a team and started the company on a shoestring budget. Their first product, vegetable pot pie, has now led to over 88 frozen meals and in 1999, they introduced a grocery line that now includes canned soups, beans and chili as well as jarred pasta sauces and salsas.

Questions:

1. Go to Amy’s Website at (http://www.amys.com/). What is the thing that you like most about it? Is the company publicly or privately held?

2. Based on the website, who was the chief accounting executive for the company and what title did that person hold? Discuss whether this title agrees or disagrees with your textbook and why. From looking at the executives on the website, can you draw an organizational chart of the company? Why is this important?

3. What were the pieces of advice that the owners offered to small business owners in the video? Do you agree or disagree? Discuss.

Source: MSNBC video (2011), Learning from the Pros: Amy’s Kitchen, November 13 (Retrievable online at http://www.openforum.com/videos/learning-from-the-pros-amys-kitchen)

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 Good Deal?

Show them the money and you, too, could live at The Plaza in New York City! Life at the city’s storied hotel is kush no matter what, but this newest listing is giving new meaning to the high life. Curbed directed our attention to the Astor Suite, a four-bedroom, six-bath rental, which is currently being offered for $165,000 per month. Yes, that makes it New York’s most expensive rental on the market.

Questions:

1. If as the video indicated, the apartment is worth $55M today, what percent of the value is the owner willing to accept in annual rent? How does this compare to the rent to value ratio of an average furnished apartment in your area?

2. Assuming that the owner’s renovations were $5M, what percentage annual return will the owner receive on his investment, if he is able to sell it for $55M? How would he record the journal entry?

3. Based on the square footage stated in the article, what is the sales price per square foot? Look online and find a home with similar square footage that is furnished and discuss how it compares. What are some of the qualitative differences that the buyer be paying for in The Plaza apartment, as compared to the one you found for sale online?

Source:

Zeveloff, J. (2011). At $165,000 A Month, This Is The New Most Expensive Apartment Rental In New York, Business Insider, Dec. 8 (Retrievable online at http://www.businessinsider.com/most-expensive-apartment-rental-new-york-astor-suite-plaza-2011-12)

Knutsen, E. (2011). Only at the Plaza Could They Charge $165,000 a Month for An Apartment, The New York Observer, Dec. 8 (Retrievable online at http://www.observer.com/2011/12/only-at-the-plaza-could-they-charge-165000-a-month-for-an-apartment/)

CNN Video, New York’s Most Expensive Rental, Dec. 15

Pharma Bribery Settlements

Pfizer Inc. will pay at least $60 million to settle allegations by the U.S. government that the drugmaker paid bribes to win overseas business, according to The Wall Street Journal. The paper, citing “people familiar with the matter,” said in an article published to its website Sunday that settlements are expected to be made public by the end of the year.

Questions:

1. Under what anti-bribery act were the charges brought?
2. In general describe what Pfizer did.
3. What other large healthcare company recently settled a similar suit and for how much?
4. What was your reaction to this video, given the news in the article? Explain.

Source:
AP Staff (2011). Pfizer to Pay Tens of Millions to Settle Bribery Probe: Report. Huffington Post.com, Nov. 21 (Retrievable online at http://www.huffingtonpost.com/2011/11/21/pfizer-to-pay-tens-of-millions-bribery-probe_n_1104875.html)

MorningStar Video (2011). Why Pharma Stocks Are Set for a Long Term Growth. (Retrievable online at http://www.huffingtonpost.com/2011/11/21/pfizer-to-pay-tens-of-millions-bribery-probe_n_1104875.html)

New Estimates Out on the Cost of Having Children

According to the U.S. Department of Agriculture, the cost of raising a child to the age of 18 is now a breathtaking $226,920. The cost of raising a child has risen over $60K since 2000. As a result, families squeezed by the economy are opting to wait to have children, but also tell Christine Romans in the video that biological factors play a role as well.

Questions:

1. What allocation in the child cost estimates has doubled since 1960? Do you agree or disagree with the decrease in the food allocation for this estimate? Why or why not?
2. What was the bottom line of Bartow’s article on the cost of a child?
3. What items do you think will make up the “other” allocation category in the USDA calculator?
4. Prepare a “general” cost benefit analysis on the cost of a child based on the video, article, and your own views. What are the elements that are difficult to quantify in the decision? Explain how qualitative issues in cost benefit analyses also impact business decisions.

Sources:

Bartow, T. (2011). How much does it cost to raise a child today? Forbes.com, Nov. 20 (Retrievable online at http://m.ctv.ca/topstories/20111118/cost-of-raising-a-child-111120.html)

USDA (2011). USDA Cost of Raising a Child Calculator. (Retrievable online at http://65.216.150.170/default.aspx)

CNN Video (2011). Cost of having kids: $226,920. CNN.com (Retrievable online at www.cnn.com/videos)

Slinky: Imitated but never duplicated

Other manufacturers have tried and failed to duplicate the classic toy, which is why every Slinky sold in the world is still made in the U.S.A. It is estimated that more than 250 million Slinky’s have been sold worldwide.

Questions:

1. In which city are Slinky’s made according to the video?
2. How was the Slinky discovered?
3. What year was the company acquired from Betty James? What was the average seniority of the workforce when acquired? Based on this, would you assume that the company had a low or high unemployment tax rate? What effect does employee turnover have on unemployment taxes for employers?
4. Research the Slinky. (see http://inventors.about.com/od/sstartinventions/a/slinky.htm) Why is it considered such an entrepreneurial success story? Where did the name come from? What was the turning point for the company’s success? What was the original investment in the company? If you were recording the original investment, what journal entry would you make for the James Spring & Wire Company?
5. If you assume that the number sold was an equal amount of the total each year since 1945 and the average price was $3, what is the amount of total revenues over the period and annually?

Sources:

Bellis, M. (2011) History of the Slinky Toy, About.com (Retrievable online at http://inventors.about.com/od/sstartinventions/a/slinky.htm)

CNN staff (2011) Slinky: Imitated but Never Duplicated, CNN Money, Nov. 1 (Retrievable online at http://money.cnn.com/video/smallbusiness/2011/11/01/smb_hwgs_slinky.cnnmoney/)

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