The Poster Boy in a Different Type of Pennant Race – Time for a Reality Check

Yankees star Alex Rodriguez will pay virtually no property tax for a $6 million apartment he is buying on the upper West Side. Rodriguez will be billed around $1,200 this year in real estate tax for his 3,000-square-foot, five-bedroom penthouse with spectacular views of the Hudson River.Over the next 10 years Rodriguez and his fellow residents will continue to receive huge discounts on their tax, a city housing official said. A little-known tax abatement program, known as the “421A” program, has existed for decades, which grants as much as a 98% percent tax abatement for up to 25 years to condo owners in newly built housing. Although the program ended in December for any new construction, the city’s powerful real estate industry is determined to get it renewed and even get it expanded.

Questions:

1.  What percentage of A-Rod’s income would he pay if assessed the full tax bill of $60,000?

2. What percentage of A-Rod’s income is the $1,200 he currently pays under the tax abatement program?

3. If $900 million are lost to this program per year and the average salary of a firefighter or teacher is $50,000, how many jobs could be saved by the reform of this abatement?  If you assume that A-Rod’s full tax bill ($60,000) is the average for those who have taken this advantage, approximately how many people benefit from the discount?  Compare these two calculations and discuss.  

4.  Are there any issues that you could use to argue that the abatement program should be reinstated? 

Source: Gonzalez, Juan. (2011). Tax Breaks on Real Estate Deals for People Like A-Rod Cost City $900M a Year, New York Daily News, February 25 (Retrievable online at http://www.nydailynews.com/ny_local/2011/02/25/2011-02-25_tax_breaks_on_real_estate_deals_for_people_like_arod_cost_city_900m_a_year.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+nydnrss/home+%28Home%29)

What is the cost of a bad hire?

In this article, Goltz helps you understand the importance of a bad business decision, action or behavior, within the hiring process that can have long lasting monetary results. The hidden costs of a bad hire can result in increased recruitment costs, increased training costs, possible increases in the rate of unemployment taxes due to increased claims paid out to a company’s former employees, the costs of losing customers, and the costs of inefficient business processes.

Questions:

1. What is the federal unemployment rate? Are there credits toward this rate?
2. What is the unemployment rate in your state? Can states borrow from the Federal government to pay unemployment insurance?
3. What is the journal entry to record unemployment tax? Does the employee ever pay unemployment taxes?

Source:
Goltz, J. (2011). The Hidden Costs of Bad Hiring. The New York Times, March 1 (Retrievable online at http://boss.blogs.nytimes.com/2011/03/01/the-hidden-costs-of-bad-hiring/?ref=business)

Accept Credit Cards at Garage Sales and Bake Sales

Why can’t everyone accept credit cards? Now there is no good reason because the Square Up system eliminates card reading equipment by providing cell phone users with an app that snaps into a headphone jack. The plug is free and you are spared the contracts, the minimums and the monthly fees. For each transaction, Square charges you 2.75 percent of the total, plus 15 cents. Alternatively, you can accept credit card payments without the card itself — over the phone, for example. You just need the card number, expiration date and security code, although these transactions cost you more (3.5 percent).

Questions:

1. Assume that you sold a surfboard on Craigs List to someone who paid you $100 and gave you a credit card. If you swipe the card, how much would you pay to Square for the use of their system?
2. Assume the same facts as in Question 1, except that you do not have the card to swipe, but enter the number, expiration date and security code. How much would you pay for Square to process the transaction?
3. Assume that you sold the surfboard from your small business. What journal entry would you make in Questions 1 & 2?
4. Why do you think that Square has restrictions on deposits over $1,000 for first time users?

Source:
Pogue, D. (2010). A Simple Swipe on a Phone, and You’re Paid, The New York Times, September 30 (Retrieved online at http://www.cnbc.com/id/39438067/)

Mickey D’s in the News: Which story is right?

According to the Wall Street Journal, McDonald’s Corp. has warned federal regulators that it could drop its health insurance plan for nearly 30,000 hourly restaurant workers unless regulators waive a new requirement of the U.S. health overhaul.  However, less than an hour after that release, ABC News  and Reuters reported that McDonald’s and the Obama administration said the claims of the  Wall Street Journal are false, regarding the dropping of its “mini-med” health insurance for hourly workers because of the new health care reform law.

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Question:

1.  Why do you think the stories are so different and why do you think there was such a quick response from McDonalds and the Obama administration?

2.  What is the medical loss ratio in the new legislation?

3. What effects do you think the new legislation will have on the financial statements of companies?

4.  What do you see as the costs and the benefits of this new legislation?

Sources:

 Adamy, J. (2010). McDonald’s May Drop Health Plan, Wall Street Journal, September 30 (Retrieved online at http://online.wsj.com/article/SB10001424052748703431604575522413101063070.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsThird)

Arnall, D. and H. Khan. (2010). McDonald’s Fights Back Against Report It Will Drop Health Care Plan, ABC News, September 30 (Retrieved online at http://abcnews.go.com/Politics/HealthCare/mcdonalds-fights-back-report-drop-health-care-plan/story?id=11764596)

Reuters. (2010). McDonald’s Denies Its Cutting Health Insurance, MSNBC, September 30 (Retrievable online at http://www.cnbc.com/id/39435771)

WSJ Video. (2010). AM Report: McDonald’s May Drop Health Plan, September 30.  (Retrievable online at http://online.wsj.com/public/page/0_0_WP_3001.html?currentPlayingLocation=37&currentlyPlayingCollection=The%20News%20Hub&currentlyPlayingVideoId={088AC31E-1087-428F-AD84-62AA9E6D5EA6})

Bollywood on a Budget

The world’s movie capital is not Hollywood but Bollywood. Bollywood is the nickname for the Indian film industry located in Bombay. Fourteen million Indians go to the movies on a daily basis (about 1.4% of the population of 1 billion) and pay the equivalent to the average Indian’s day’s wages (US $1-3) to see any of the over 800 films churned out by Bollywood each year. That’s more than double the number of feature films produced in the United States. However, as this video presents, more movie productions in Bollywood will undergo budget cuts due to economic risks and the push for profits.

Questions:

1. The article tells about the 10 most high budget films of Bollywood. Look at the budget for Love Story 2050. If 1 crore rupee = 10,000,000 rupees, use the Currency Converter at http://coinmill.com/INR_USD.html to find out how many U.S. dollars this is. How does this compare to the average budget for a Hollywood movie?

2. In the article, look at the movie “Singh is Kinng.” This film had the title track song sung by Snoop Dogg. Snoop Dogg was paid 7 crores for this. What percent of the movie’s total budget was this?

3. In the article, look at the movie “Ghajini.” What percentage of profits were made on this movie?

 
Source:

Staff (2009). 10 Most High Budget Films of Bollywood. Full Dhamaal, August, 19 (Retrievable online at http://www.fulldhamaal.com/bollywood-critics/10-most-high-budget-films-of-bollywood-21146.htm)
Video (2010). Budget Bollywood Success, September 7. (Retrievable at http://www.cnn.com/video/)

Saving Money through Social Media

The recession has bred a new type of coupon: the group coupon. In recent months, several Web sites have launched nationwide giving customers discounts on restaurant meals, sporting events, spa treatments, golf outings — pretty much any expenditure that many people give up during economic downturns. The catch is that the coupon only applies if a certain number of people use it.

Questions:

1.  After watching the video and accessing http://www.groupon.com, explain the company’s business model. 

2. Do you think that the group coupon trend will continue?  Why or why not?

3.  Go to the “recent deals” in your area at http://www.groupon.com.  Pick one of the deals. If you were a company offering this deal and using the services of Groupon, what accounts would be affected by the  deals you provide?

Sources:

Eklund, Kevin. (2010) Best Social Group Buying Sites For Killer Daily Deals And Deep Discounts. Tomuse.com (Retrievable online at 

http://tomuse.com/group-buying-sites-coupon-deals-discount-savings/#ixzz0wt6rxlKihttp://tomuse.com/group-buying-sites-coupon-deals-discount-savings/)

Trejos, Nancy (2009). The Humble Coupon Joins Social-Media Web, The Washington Post, September 1 (Retrievable online at http://www.washingtonpost.com/wp-dyn/content/article/2009/08/31/AR2009083103837.html)

CNN Video. (2010). Group Coupon Business Soars, August 13. (Retrievable online at  http://www.cnn.com/video/#/video/tech/2010/08/13/am.group.coupon.business.cnn?iref=videosearch)

The Costs of Liposuction

Lots of people are curious about the price of liposuction (which is also referred to as lipoplasty and suction lipectomy). Although the procedure sports a somewhat hefty price tag, it is among the cheaper cosmetic surgeries available. Some the of the cheapest areas for liposuction are the arms, buttocks, female back, hips and outer thighs. These areas could cost around $1,500 to $5,000 to treat.

Questions:

For the following questions, pick an area of the body discussed in the article and answer questions 1-3.

1.  What factors can affect the overall cost? What qualitative issues are important before you chose the lowest costs in lipoplasty?

2.  What costs do you think are fixed costs relating to these procedures?

3.  What costs do you think are variable costs relating to these procedures?  What costs are mixed?

Source:

Heftel, Christian. (2010). What Would it Cost Me to Get Liposuction? MzoneArticles.com, July 30 (Retrievable online at http://www.mzonearticles.com/Art/28071/84/What-Would-It-Cost-Me-To-Get-Liposuction.html)

How Low Can the Costs Go?

India has developed the world’s cheapest laptop – a touchscreen device which resembles Apple’s wildly popular iPad but will cost just £23.

The prototype was unveiled this week by Kapil Sibal, the country’s human resource development minister, who said 110 million Indian schoolchildren would be the first recipients.

Questions:

1.  Find the current exchange rates and calculate the price of the laptop in U.S. dollars?  Show your work and the site you found to get the exchange rate.

2. What types of costs do you speculate that the country has been able to cut to achieve the £1,450 Tata Nano car and a mobile phone costing less than £11. 3 and now the £23 laptop?

3. What do you see as the biggest advantages are of this new laptop?

 

Source:

Halliday, J. (2010). India unveils world’s cheapest laptop. Guardian.co.uk, July 23 (Retrievable online at http://www.guardian.co.uk/world/2010/jul/23/india-unveils-cheapest-laptop)

New Revenue Recognition Standards on the Way for Contractors

Contractors should be educating themselves on the impact of the new proposed revenue recognition standards and the recently published (June 24, 2010) exposure draft pertaining to revenue from contracts with customers. Public comments are due October 22, 2010, and it is expected the standards will be finalized in 2011.

Questions:

1. What are some of the significant changes in this standard that will affect contractors?

2. How will the proposed standard define the economic unit of measure?

3. Explain what the new cost of capitalization rules will mean for contractors.

 

Source:

Henderson, J. (2010). Proposed Revenue Recognition Rules Would Significantly Affect Contractors, BKD Alerts, June (Retrievable online at http://www.bkd.com/industry/Construction-RealEstate/Insights/2010/2010-06alertsCRE-1.htm)

What Does It Cost To Make An Apple IPhone4?

According to market research firm, Apple’s iPhone 4 wireless handset components cost about  $187.51. The iPhone 4 sells for $199 and $299. The most expensive component is the LG display that costs $28.50. According to the consultant, the iPhone has typically hovered around the $170-to-$180 cost range because Apple seems to be trying to hit some kind of budget.

Questions:

1.  According to the article the firm that put this information together used a teardown analysis.  What is this?

2. What are some of the reasons that Apple would put together this $170-to-$180 cost point budget?

3.  What is the markup on the gyroscope chip? What percent of the total part cost is the display?

4.  What percent profit is made on the iPhone 4 as compared to the iPhone 3GS?

Source:  Hesseldahl, A. (2010). Apple iPhone 4 Parts Cost About $188, Bloomberg Businessweek, June 28 (Retrievable online at http://www.businessweek.com/technology/content/jun2010/tc20100627_763714.htm?link_position=link1)

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