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When Rent the Runway, a New York start-up hoping to make high-end fashion as accessible as renting a movie from Netflix, first introduced its service in late 2009, it wasn’t clear how successful the venture would be. In the past 18 months, since Rent the Runway came out of its beta testing phase, it has enticed a million members to join the service. Each week, another 40,000 new members sign up, the company said. The company has raised $16.5 million from venture capitalists, and grown from a few employees to 51 staffers, prompting a move to larger offices in downtown New York.

1.  Assume that the company rents two dresses a year to each member.  If the dresses rent for $50 and variable costs are $20 per rental and the company’s fixed costs for the year total $1,620,000, how many dresses must be rented in order for the company to break even? 

2. Assume that during the current year Rent the Runway reported total revenues of $891,640 and profit of $91,486.  Fixed costs were $332,043, and 44,000 dresses were rented.  If costs and prices are expected to stay the same next year, but the company expects to increase rentals to 50,000 dresses, what will be the company’s budgeted profit?

3. From an entrepreneurial standpoint, do you think this plan would work for any other type of product? Explain.

Source:
Fox Business Video (2011). Rent the Runway: Designer Dress Rental Catching On, Fox Business News.com February 8 (Retrievable online at http://video.foxsmallbusinesscenter.com/v/4529267/rent-the-runway/)

Wortham, J.(2011) Rent The Runway Takes Flight, The New York Times, May 2 (Retrievable online at http://bits.blogs.nytimes.com/2011/05/02/rent-the-runway-takes-flight/?ref=business)

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Of the 50 most populated cities in the United States, New York remains the city where it’s better to rent than buy. The Big Apple’s competition? Fort Worth, Texas. According to Trulia, an online real estate resource, buying a home has become more affordable than renting an apartment in 80 percent of major cities. Besides New York and Fort Worth, only in Kansas city is renting the preferable option. This is right behind other cities including Memphis, Los Angeles and San Francisco.

 Questions:

 1. What was the comparison that Trulia used in all the markets it looked at in terms of apartment size? Can you see any problems with the methodology it used, based on the article? 

 2. Find a house that you would be interested in buying and then try the rent or buy calculator at http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=1&oref=slogin.  What is the most important thing that you found out when using this tool?

 3.  Look at the AGBeat article and its tables regarding the Trulia data.  Pick a city in the Price:Rent Ratios table with the biggest Quarter-Over-Quarter Movement in Favor of Homeownership.  What factors do you think are leading to these results for the specific city you chose?

Sources:

Staff (2011). Where It’s Better To Rent A Home Than Buy: Trulia, Huffington Post, April 29 (Retrievable online at http://www.huffingtonpost.com/2011/04/29/housing-rent-buy-trulia-prices_n_855688.html)

Staff (2010). Is it Better to buy or rent?, New York Times, April 21 (Retrievable online at http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=1&oref=slogin)

Staff (2011). Trulia Rent versus Buy Index reveals Homeownership to be most Advantageous, AGBeat News.com, April 29 (Retrievable online at http://agentgenius.com/real-estate-news-events/trulia-rent-versus-buy-index-reveals-homeownership-to-be-most-advantageous/)

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Chrysler has turned its first profit since leaving bankruptcy two years ago. The company reported first-quarter net income of $116 million and revenues of $13.1 billion on Monday. The profit is a milestone in Chrysler’s long road back to health after its 2009 bankruptcy. It last reported a profit in 2007.

Questions:

1. What percentage of revenues is Chrysler’s profit?

2.  According to the article, what factors led to this profit?

3. The U.S. government remains a part owner of Chrysler.  What percentage does it hold?

3. (a) According to the article, Fiat SpA gave Chrysler a vote of confidence when it said it will spend $1.3 billion to raise its stake in the American company. That will increase Fiat’s holdings from 30 percent to 46 percent. Based on this information, how much is Fiat paying for each percent of Chrysler that it buys?

(b) The U.S. government remains a part owner of Chrysler.  What percentage does it hold?

(c) Based on your answer in 3(a) and 3(b), what is the current market value of the U.S. holdings in Chrysler?  

Source:

Durbin, Dee-Ann (2011). Chrysler Posts First Profit Since Bankruptcy, Huffington Post, May 2 (Retrievable online at http://www.huffingtonpost.com/2011/05/02/chrysler-profit_n_856215.html)

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Weight Watchers’ CEO talks about keeping the company trim and profits healthy. Weight Watchers International, Inc. (WWI) is a consumer company and the provider of weight management services, operating through a network of Company-owned and franchise operations.

Questions:

1.  According to the video, how much do consumers pay for Weight Watcher products? Discuss whether you think the future of the company would be good as an investment and why.

2.  According to the video, what differences has Weight Watchers had to consider to translate its models to different groups of people?

3. What is a mission driven culture that the CEO talks about in this video?

4.  What is the current price of the company’s stock?  What is the company’s P/E Ratio?  How do you interpret that? What is the company’s EPS? Look at Weight Watcher’s March 3, 2011 10-K.   What makes up the majority of the company’s assets and what percentage is that of total assets? Explain why you think this is so important to Weight Watchers.

5.  In the New York Times profile, what is the most interesting article you see about Weight Watchers? Why?

Source:

CNN.com video. (2011) Keeping a Company in Shape, April 19. (Retrievable at www. cnn.com/video/)

The New York Times staff.  Weight Watchers International, Inc. Company Information   (Retrievable online at http://topics.nytimes.com/topics/news/business/companies/weight-watchers-international-inc/index.html)

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Cuba’s Raul Castro has outlined hundreds of reform measures in preparation for the big Communist Party Congress that starts this weekend, the first since 1997. Among these, Cuba’s cars and homes will go on sale soon as part of sweeping economic changes. These major changes include Cuba’s property laws. The reforms could lead to a real estate boom, but could also mark the beginning of the end for many of Cuba’s classic American cars.

Questions:

1. What was the most unusual modification to one of the vintage cars described in the article?

2. What did you find to be the best result of these reforms, if any, mentioned in both the video and the article?

3. What types of cars now make up most of the vehicles on Cuba’s roads?

4. From an economic and accounting standpoint, do you think that the cars have a greater profit advantage to remain in Cuba or to be sold to the highest bidder and be exported? Discuss.

Sources:

CNN.com video. (2011) Cuba’s Cars and Homes Up for Sale? April 19 (Retrievable online at www. cnn.com/video/)

Miroff, N. Real Estate, Auto Markets Drive Reform Talk In Cuba, April 15 (Retrievable online at http://www.npr.org/2011/04/15/135406369/real-estate-auto-markets-drive-reform-talk-in-cuba)

Posted by & filed under Accounting Principles, Advanced Accounting, All Articles, Auditing, Cost Accounting, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Fraud Accounting, IFRS, Intermediate Accounting, International Accounting, Managerial Accounting, Uncategorized, Video Updates.

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)

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A Pittsburgh woman has pleaded guilty to bank fraud and money laundering for taking advantage of an online glitch that enabled her to make $1.1 million in overdraft withdrawals. Forty-six-year-old Jammie Harris learned of the glitch from another woman. That woman was indicted in January on charges that she stole more than $900,000 from Dwelling House Savings and Loan. Unfortunately, Dwelling House closed down in 2009 because it couldn’t absorb $3 million in fraud losses.

Questions:

1. How was the bank able to recover about $1 million of the stolen funds in 2009?

2. What was the mission of the savings and loan?

3. Prior to the shutdown of Dwelling House, what service was one of the regulator’s major concerns over? Discuss.

4.  In terms of accounting/finance, explain what led to the downfall of Dwelling House.

Sources:

Associated Press. (2011).Woman Admits Million-Dollar Bank Ripoff, WTAE.com, April 6 (Retrievable online at http://www.wtae.com/news/27455532/detail.html)

Grant, Tim. (2009). Dwelling House Savings’ deadline to recover $3 million nears. Pittsburgh Post- Gazette, June 28 (Retrievable online at http://www.post-gazette.com/pg/09179/980186-28.stm).

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A suit called GSP Finance LLC v. KPMG LLC was filed on March 29 with GPS alleging that KPMG “was well aware of the desperate financial condition of Hicks Sports” — specifically, the Texas Rangers and Dallas Stars — when it was hired to conduct the ’08 audit. The suit says Hicks Sports Group suffered losses of $113 million in 2002, $67.8 million in ’03 and $95 million in ’04. Till the Stars are sold, it won’t be clear exactly how much Hicks’s lenders have lost.

Questions:

1. What issues are in question regarding the clean audit?
2. What was the related party issue that is coming to light?
3. Identify all the financial statement users impacted by this clean opinion.

Source:
Wilonsky, R. (2011)KPMG Sued For Giving Tom Hicks “Clean Audit” a Year Before $525-Million Loan Default, March 30 (Retrieved at http://blogs.dallasobserver.com/unfairpark/2011/03/kpmg_sued_for_giving_tom_hicks_clean_audit_a_year_before_525-million_loan_default.php)

Posted by & filed under Accounting Principles, Advanced Accounting, All Articles, Auditing, Cost Accounting, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Fraud Accounting, IFRS, Intermediate Accounting, International Accounting, Managerial Accounting, Uncategorized, Video Updates.

As more and more Americans face mortgage foreclosure, banks’ crucial ownership documents for the properties are often unclear and are sometimes even bogus, a condition that’s causing lawsuits and hampering an already weak housing market. Docx, and companies like it, were recreating missing mortgage assignments for the banks and providing the “legally required signatures” of bank vice presidents and notaries, signed by minimum wage employees that knew they were signing someone’s   names other than their own.

Docx was owned by a company called LPS, a $2 billion firm that calls itself the nation’s leading provider of mortgage processing services. LPS told us that when it found out about the phony signatures in 2009 being signed in a boiler room environment, it shut Docx down. The FBI and several states are investigating.

Questions:

1.  Based on the article and video, do you think this is a case of fraud?  Discuss in terms of intent.

2. What are all of the costs you think will be litigated in this situation? What was missing in the system that allowed this to happen? Discuss.

3.  Assuming this will be litigated and you are asked to write a financial footnote disclosure regarding contingent litigation against LPS, what would you include? Discuss.

Source:

CBS video. (2011) The next housing shock, April 3(Retrievable online at http://www.cbsnews.com/video/watch/?id=7361572n&tag=related;photovideo)

Anderson, R.  and D. Ruetenik (2011) Mortgage Paperwork Mess: Next Housing Shock?, CBSNews.com, April 1 (Retreivable online at http://www.cbsnews.com/stories/2011/04/01/60minutes/main20049646.shtml?tag=contentMain;contentBody)

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On March 23, 2011, Elizabeth Taylor died at the age of 79. She was synonymous with glamour and class,  won two Oscars and at the pinnacle of her career, was the highest paid actress in the world. In later life, Taylor also distinguished herself as a businesswoman with her own line of perfume and became an activist in the fight against AIDS.

Questions:

1.  What was Elizabeth Taylor’s salary for the movie Giant, which was her biggest paycheck by 1956?  How does this compare to the paycheck of your favorite actress in a recent movie? 

2. In 1944, Elizabeth Taylor’s breakout film was National Velvet.  How much did the film earn in the U.S. and how much is that today, according to the article?

3.  Assuming the box office gross was $57 million on the film Cleopatra, what was Elizabeth Taylor’s paycheck for the film?  What percentage increase was this as compared to her salary for Giant?  What was the problem with the film, Cleopatra? 

Source:

Bukszpan, D. (2011). The Profitable Career of Elizabeth Taylor. CNBC.com, March 23 (Retrievable online at http://www.cnbc.com/id/42235186?slide=1)