New York (CNN Business)President Donald Trump has long cast OPEC as an evil force ripping Americans off by not pumping enough oil. Now he's pleading with Saudi Arabia and Russia to stop pumping so much oil. In the past, Trump has called OPEC a "monopoly" (it's not) that must be broken up. "They are robbing our country blind," he tweeted in November 2012. Since winning the presidency, Trump has repeatedly hammered OPEC for engineering higher oil prices to hurt American drivers. Donald Trump cannot win reelection without Texas. It's as simple as that." GREG VALLIERE, CHIEF US POLICY STRATEGIST AT AGF INVESTMENTS "OPEC, please relax and take it easy. World cannot take a price hike -- fragile!" the president tweeted in February 2019. Flash forward to 2020: Instead of slamming OPEC for artificially restraining production, Trump is urging the cartel to do just that. And rather than calling for OPEC to be broken up, Trump is elevating the group's status by encouraging it to stop the oil crash one that threatens to set off a surge of bankruptcies and job losses in Texas and throughout America's oil industry. Trump is even attempting to broker an agreement between Saudi Arabia and Russia to end their devastating price war by massively cutting production. The president's tweets on the subject Thursday helped US oil prices to spike 25% -- their biggest one-day gain in history. "It's amazing to have Trump get in the middle of this," Helima Croft, head of global commodity strategy at RBC Capital Markets, told CNN Business. "Think about the 180: For years, Trump hated collusion among the producers and wanted to get rid of OPEC." Texas is a huge prize in 2020 That reversal reflects shifting political realities. The coronavirus pandemic is causing millions of job losses ahead of the November presidential election. A prolonged downturn in the US oil industry would only amplify the economic pain, especially in Republican-leaning states. "What has changed is the political equation: Donald Trump cannot win reelection without Texas. It's as simple as that," said Greg Valliere, chief US policy strategist at AGF Investments. Oil prices spike by a record 25% as Trump talks up huge production cuts and Saudi Arabia calls for OPEC meeting Not only is Texas the second-biggest electoral prize (after California), it's also by far the nation's largest oil producer. In fact, Texas pumps more oil than every OPEC nation not named Saudi Arabia. But Texas is getting crushed by cheap oil. Russia, seeking to blunt the rise of US shale oil producers, refused last month to cut oil production. Saudi Arabia responded by surging output and slashing prices. Reflecting the urgency of the moment, Trump is meeting with the CEOs of ExxonMobil (XOM), Chevron and other leading US oil companies Friday to discuss the crisis facing the industry. Navigating this situation is a delicate balance. The White House doesn't want oil bankruptcies and job losses on its hands. But Trump doesn't want to be seen helping oil CEOs and Saudi Arabia at the expense of average Americans who want cheap gas prices. 'I would always raise hell with OPEC' The president has acknowledged his evolving views. "You always get a little torn," Trump said on March 20. "Until we became the leading producer, I was always for the person driving the car and filling up the tank of gas...If (prices were too high, I would always raise hell with OPEC." Now the oil crash is setting off real turmoil in the energy industry. Whiting Petroleum (WLL), a former rising star in the shale industry, this week became the first of what will surely be a wave of US oil companies to file for bankruptcy during this crisis. Nearly 100 US oil and gas producers could file for Chapter 11 over the next year, Buddy Clark, co-chair of the energy practice at Houston law firm Haynes and Boone, told CNN Business. And that may be the optimistic view. Rystad Energy warned this week that 140 US oil producers could file for bankruptcy this year if oil stays at $20 a barrel, followed by another 400 in 2021. Even the largest oil companies are cutting back. Debt-ridden Occidental Petroleum (OXY) slashed its dividend by 86% and announced pay cuts across the entire company. Chevron (CVX) is cutting production and spending in hopes of avoiding its first dividend cut since the Great Depression. "We have a great oil industry, and the oil industry is being ravaged," Trump said Wednesday during a press briefing. "We don't want to lose our great oil companies." Will Texas cap output? Now there is a debate playing out over whether and even how the United States should intervene in the oil war. Some independent oil producers are pushing Texas to -- for the first time in more than 40 years -- limit the state's output. A wave of oil bankruptcies is on the way Ryan Sitton, a commissioner on the Railroad Commission of Texas, the state's energy regulator, even held a call Thursday with Russia's energy minister to discuss options. "While we normally compete," Sitton said in a tweet, "we agreed that #COVID19 requires unprecedented levels of int'l cooperation." He added that he will speak to Saudi Arabia's energy minister soon. Shale pioneer Harold Hamm and others are pushing for Trump, the self-proclaimed "Tariff Man," to sanction OPEC by enacting tariffs that would punish Russia and Saudi Arabia for their ruinous oil war. But the American Petroleum Institute, the nation's largest oil lobby, is urging Trump to avoid intervening in free markets. Trump has so far taken modest steps, including instructing the Energy Department to take advantage of cheap prices by filling up the nation's emergency stockpile of crude. Debate over free markets OPEC has signaled it isn't willing to keep cutting production -- unless other countries join in and do so, too. The cartel will meet via video conference Monday with Russia and other countries outside the alliance, two sources at the OPEC secretariat told CNN Business. Although the final list of invitees has not yet been set, the United States, Canada and Mexico could reportedly be invited. But it's not clear how the United States would enact its own production cuts. US output is controlled by thousands of different companies across the nation who all have their own competing interests. The irony calling on OPEC to come to the rescue is that Trump and others for years have complained that OPEC distorts free markets. And Now that Saudi Arabia and Russia have stopped artificially restraining their production, they're being urged to step back in to calm markets. "This is the free market. We are living in the world of NOPEC right now," RBC's Croft said. "OPEC's cuts gave US producers a vital lifeline. Now that the lifeline has been withdrawn, you have figures in Washington wanting sanctions against OPEC." The above article was published on April 3, 2020 on CNN Business News. Read the article carefully and answer the questions below. (Do it by yourself). Q1. What are the major points in this article. Q2. How do you see the role of OPEC from the above article.
In: Economics
Step 1) Following the steps from prior weeks, add a new page to your website. Save this new page as AboutUs.html. Make sure that the name of the page does not have a space (see the screenshot below of the Save dialogue box).
Step 2) Add the <body> tag, navigation, and <header> tag. The header <h1> text should say “About Us”.
Hint: Refer to Week Three, Steps 3, 4, and 5 for a refresher on how to add these elements.
Step 3) Add a link to the external CSS page.
Hint: Refer to Week Three, Step 8 for a refresher on how to add the link to the MyStyle.css page.
Step 4) Save your page and open it in a web browser, such as IE or Chrome. Your page should render like the image below with the header and the navigation on the top right of the page.
Step 5) Add a <div> tag between the closing </header> and closing </body> tags. To avoid confusion with <div> tags that you will add later, name this tag “div1”.
<div name="div1">
</div>
Step 6) Add a new file folder named media to the folder where you’ve chosen to save your Week Five files (the screenshot below shows your file structure with the media folder in the same place as your HTML and CSS files).
Step 7) Copy the file named Swiss_Mountain_House.mp4 to the “media” folder.
Note: It’s important that you have the legal right to use any and all media files you add to web pages; you automatically own all rights to media files you created yourself, most other files you must obtain permission from the owner of the file. Some copyright owners grant free use of their work just for asking. Websites that offer free media files will state on their site that the files are royalty free. Never use someone else’s work without being sure you have the right to do so. In this case, your instructor has ensured you have the right to use these files.
Step 8) Within the opening <div> and closing <div> tags for “div1”, add the following code to add a video clip to your AboutUs.html page:
<video width="400px" controls>
<source src="media/Swiss_Mountain_House.mp4" type="video/mp4">
Use a browser (such as IE or Chrome) that supports the HTML5 video tag for mp4 files.
</video>
Note: The source “src” tag for the path is pointing to the media folder. The line under the <source> tag is verbiage that the user may see if the browser is not compatible with the HTML5 video tag, or if the file is missing. All browsers behave differently, but it is a good practice to provide the alternate text.
Step 9) Add the following HTML comment on the line above the beginning <video> tag. Note the syntax that delineates the start and stop of the HTML comment. The HTML interpreter will ignore everything between the opening and closing comment tags so you only see this comment when you look at the source. Notice that the HTML comment syntax is different from the JavaScript® comment syntax.
<!-- Royalty-free video loops are from https://www.freeloops.tv/ -->
Step 10) Save and refresh the browser. Your page should render like the image below with an embedded video file below the header.
Step 11) Click the play arrow to test the 5-second video.
Note: There is no audio with this video.
Step 12) Copy the files named Cow-SoundBible.mp3 and Cow-SoundBible.wav to the “media” folder.
Step 13) Add a second <div> tag (named “div2”) after the closing </div> tag for “div1”, but before the closing </body> tag. Insert the <article> and <audio> element code below. Note that the source “src” tag for the path is pointing to the media folder and there is also a comment above the opening <audio> tag.
<div name="div2">
<article >
Our cheese products come from the finest farms in Switzerland. Click the audio play button below to hear our happy cows!
</article>
<!-- Royalty-free sound clips are from http://soundbible.com/ -->
<audio controls >
<source src="media/Cow-SoundBible.mp3" type="audio/mpeg">
<source src="media/Cow-SoundBible.wav" type="audio/wav">
<source src="media/Cow-SoundBible.ogg" type="audio/ogg">
Your browser does not support the audio tag.
</audio>
</div>
Step 14) Save and refresh the browser. The page will render like the image below with text and the embedded sound file below the video. Press the audio play arrow to test the audio.
Note:In Step 14, the line under the <source> tag is verbiage that users may see if their browsers are not compatible with the HTML5 audio tag, or if the audio files are missing. To simulate this situation, comment out the two lines for the MP3 and WAV files. When your interpreter cannot see the two commented-out lines, it will only read the file for the OGG file. Since that file is missing, your browser will either show the alternate text, or disable the audio control. All browsers behave differently, but providing these options allows different browsers to handle the situation gracefully. Without these options, a browser might display a broken link to a sound file with no explanation, which would confuse your users and give them the impression that your site is poorly constructed. Remember that in HTML the beginning comment tag is <!-- and the closing comment tag is -->. If you tested the missing file scenario above, be sure to uncomment the lines that point to the MP3 and WAV files.
Step 15) To float “div1” and “div2” side-by-side, use the "myColumns" CSS class from Week One to both <div> tags. Save your file after you are finished. The modified opening <div> tags will look like this:
<div name="div1" class="myColumns">
<div name="div2" class="myColumns">
Step 16) Open the MyStyle.css page in NotePad++. Add the following code to the end of the existing code, right after the closing curly brace } for the myColumns block, as follows:
.aboutUsMedia {
width: 250px;
}
Step 17) Back in the AboutUs.html page, modify the opening <video>, opening <article> tag, and opening <audio> tags.
Note: The “aboutUsMedia” class will replace the “width” attribute for the <video> tag.
<video class="aboutUsMedia" controls>
<article class="aboutUsMedia">
<audio class="aboutUsMedia" controls >
Step 18) Save and refresh the browser. The <video> tag, <article> tag, and <audio> tag are all resized to a width of 250px, and the two <div> tags are now floating side-by-side as shown in the image below.
Step 19) Add the following <footer> code between the closing </body> tag and the closing </html> tag:
<footer>
Click
<a href="https://www.nationalgrocers.org/" target="_blank">here</a>
to learn more about the National Grocers Association.
</footer>
Step 20) To push the <footer> to the bottom of the page, and to stop the floating of the footer to the right, add the following to the end of your MyStyle.css page.
footer {
clear:both; /* this clears the float */
display: block;
position: absolute;
bottom: 0;
left: 0;
right: 0;
background-color: lightgray;
text-align: center;
}
Step 21) Save your file and refresh it in the browser window. Your page should render like the image below with a formatted footer at the bottom of the page that includes a link. To test the external link, click the “here” hyperlink in the footer at the bottom of the page. The external page will open in a new window.
Note: Be sure to save all the files, as you modified the AboutUs.html and MyStyle.css files in the prior steps.
In: Computer Science
Part 4/A
`
Date: July 1, 2012; 12:30 PM
After the big igniter problem, the company is still reeling. The ramifications were severe; they lost several big customers over it, along with creating a huge amount of scrap. To make matters worse, they were not able to recoup their payment from TriTech because the igniters were delivered as they had been designed. It was their own fault, not TriTechs. After a few weeks, purchasers were able to find replacement parts, but delivery took several weeks, and at significant cost. During that time, Patrick had hourly employees take a two-week unpaid leave. After employees were asked to return, productivity was low—presumably because morale was low after the forced leave, and they were likely performing a work slow-down that was not sanctioned by the union. After what they have been through, Bill’s cannot afford to have poor productivity now—all of the gains made between March and May were wiped out with the igniter snafu.
Part 4/A - Answer the following questions:
Part 4/B
Date: July 15, 2012
Early in July, Patrick noticed that productivity numbers were very low and attributed the problem to a work slow-down. Knowing that the union had not sanctioned the slow-down, Patrick took a hard stand. He implemented strict new rules for bathroom breaks, smoking breaks, and lunch. Productivity seemed to go up. He walked through the factory 3 times a day to be sure that the machines were running, and that they had an hourly employee working on them. Even though they complained about the new rules, employees seemed to be generally following them and working harder. He assumed this resolved the productivity issue once and for all.
But, three days after implementing the new rules, the earnings report came in, and things looked bleak. In the last 3 months, Bill’s had lost over a million dollars per month. At this rate, Bill’s could only survive another 4 months before they were completely insolvent.
Patrick would have no choice but to lay people off. He decided to lay off 100 people with the lowest seniority, and move other employees around to get the work done. Many hourly employees would have to change shifts and work days to accommodate the new schedule. Patrick knew this would cause problems for people’s personal lives, but he had no choice, what else could he do? They would also have to work harder since they continued to have the same amount of work, but had 100 fewer people to complete it.
After a week of planning with Susan and Janet (the managers of HR and Operations) and a few key supervisors, Patrick executed the layoff. Within an hour, union officials from within the plant and state union representatives were calling. They were threatening a walk-out. Patrick needs to fix things. Now.
Part 4/B -Answer the following questions:
Part 4/C:
Date: July 20, 2012
It has been a taxing, exhausting first six months for Patrick. In that time, he learned a great deal about the financial and accounting systems, the hierarchy and reporting structures, and the market. However, upon reflection be began to notice that while he had spent a great deal of time thinking about money and structure, he hadn’t spent a lot of time thinking about the company itself. As he reflected, a number of things popped out at him. The next morning, he started to open his eyes to his surroundings and the results were enlightening.
First, he noticed the parking lot, and realized that there were actually two—one out front for the office people, and a much larger one behind the factory where hourly factory employees and supervisors parked.
Next, he noticed that when you walk into Bills’ there are several grills sitting in and around the offices. But none were Bill’s Grills—they were grills from competitors. There were several pictures from the old days—pictures of Bill in the original garage where the company started, pictures of their first factory in the old warehouse, and pictures of Bill at the company picnic. But, all the while he had been there, few had mentioned Bill’s name.
Finally, he went onto the factory floor. Within minutes of entering, he noticed an employee bending steel for the gas line that connects the propane canister with the grill itself. After observing for a moment, he realized that the employee had removed the safety shield that kept her arm from entering the metal bending press. Further, when she bent the steel, it left a stress crack in the metal—one that went unnoticed. Knowing what he did about steel and pressure, Patrick was concerned that the crack would turn into a full-blown hole when under pressure from the propane coming out of the propane tank. Patrick watched the employee bend three pieces of steel, each resulting in a stress crack. Out of curiosity, he stepped up to the employee, who continued to work, and asked “Did you know that you are making bad product?” She responded “Yes”, and went on with her work. “But why?” said Patrick, “this is a huge liability and potentially very dangerous for consumers.” Her response was simple: “Because my supervisor told me to. She said the order had to get out--if we missed this shipment, we would lose the account.” And, with that, she went back to work. ‘Ironic’ thought Patrick. All of this took place beneath a large banner that said “Quality is our Top Priority”. This exchange left Patrick thinking about the organization’s culture in a totally new way. What was he going to do?
Part 4/C -Answer the following questions:
In: Operations Management
Unhealthy Accounting at HealthSouth PROBLEM In 1996, key executives of HealthSouth, one of the nation's largest providers of health care services, began a massive fraud that eventually amounted to $2.7 billion.1 HealthSouth is a textbook case of unbridled greed combined with a lack of corporate governance, which illustrates the difficult situation that auditors face when clients perpetrate a massive, collusive fraud. HealthSouth was founded in 1984 by Richard Scrushy and coworkers at Lifemark, a Houston-based company that owned and managed hospitals.2 They took HealthSouth public in 1986, and by 1996, the company's market value had grown to $12 billion.3 According to the government's complaint, Scrushy, the chief executive officer, insisted that the company meet or exceed earnings expectations established by Wall Street analysts. Senior officers would present actual accounting earnings to Scrushy, and if they did not meet the forecasts, he reportedly told them to “fix it.” Unbeknownst to Scrushy (according to his testimony at trial), a team of senior accounting personnel, known as “the family,” held “family meetings” to determine ways to increase accounting earnings. They would look for “holes” in the balance sheet to be filled. The fictitious accounting entries they used to plug those holes were referred to as “dirt.” Methods included overestimating insurance reimbursements, overstating fixed assets, improperly capitalizing expenses, and overbooking reserve accounts.4 The “family” members started by manipulating contractual allowances by consolidating entry adjustments after the end of each quarter. The allowances accounted for the differences between what HealthSouth charged patients and the amounts the company could collect from the patients' health insurers. By lowering the allowances improperly, HealthSouth improved its net revenue and bottom-line earnings. To offset the contractual allowances, the company increased inventory, intangible assets, fixed assets, and even cash. The fictitious fixed asset line item at each facility was listed as “AP summary.”5 The company's CFO, William Owens, a former Ernst & Young (E&Y) senior manager and one of five CFOs who eventually pleaded guilty to the fraud, also used the acquisition of Horizon/CMS to book $400 million worth of goodwill as part of the cover-up. He pulled the trick off with the help of two HealthSouth colleagues and a finance executive from Horizon.6 On paper, HealthSouth maintained impeccable corporate policies. The company established a confidential whistle-blower hotline in 1997; developed a nonretaliation policy, which gave the compliance director direct access to the board; and established a centralized finance function. This centralized function seemed to be a particular advantage because other health care companies were falling apart as a result of problems in field offices. Reviewing these policies, it is not difficult to see why a massive fraud did not seem likely.7 Despite outward appearances, actual corporate governance was quite different. Many decisions were made at the executive level, which limited checks and balances along the way. The audit committee met only once a year. The accounting systems in the field did not interface with the corporate enterprise-resource-planning software, making it necessary for results to be consolidated at the corporate level, where it was easier to “cook” the numbers.8 Scrushy, a former gas station attendant, fit the profile of the overbearing CEO who set the wrong tone at the top. He reportedly managed by fear and intimidation. Scrushy installed security cameras throughout headquarters to watch employees. He allowed rank-and-file employees into his executive suite only when he wanted to berate them.9 According to the government's complaint, accounting personnel advised Scrushy in 1997 to abandon the fraud, but he refused, saying, “Not until I sell my stock.”10 The five CFOs realized the error of their ways, but most felt helpless to blow the whistle or even leave the company. One, Michael Martin, testified he tried to quit, but Scrushy reportedly said, “Martin, you can't quit. You'll be the fall guy.”11 Later, when Treasurer Leif Murphy decided to leave the company because of the fraud, Martin punched him twice at his going-away party and wrote on his farewell card, “Eat [expletive] and die.”12 Page C15 AUDIT APPROACH HealthSouth was the largest client of the Birmingham office of E&Y. The 2001 audit fee was $1.2 million, and the firm billed an additional $2.5 million for other services. Many of HealthSouth's senior accounting staff had been E&Y employees.13 In hindsight, there had been red flags for the auditors to pursue. For example, from 1999 to 2001, net income rose nearly 500 percent while revenue grew only 5 percent.14 The audit team also took no action when members learned that internal auditors were denied access to the corporate books. Finally, the team did not sufficiently investigate employee complaints. The auditors were not oblivious to HealthSouth's risky profile. Jim Lamphron, a partner on the audit, said they focused on two risk factors: (1) “Company officials harboring a strong interest in seeing a rising stock price” and (2) “Management ranks dominated [by] those at the top. … Specifically, we were focusing on Richard Scrushy.”15 Despite E&Y's awareness of important fraud risks, the “family” was adept at the cover-up, making it difficult to detect certain aspects of the fraud. The SEC said that HealthSouth employees knew that E&Y questioned additions to fixed assets at any particular facility only if the additions exceeded a certain dollar threshold ($5,000), so the company avoided exceeding that dollar amount by spreading the adjustments below this materiality limit to various accounts and locations. When the auditors did question an accounting entry, HealthSouth officials created false documents to cover their tracks. When E&Y auditors asked for fixed assets ledgers for various facilities, accounting personnel would regenerate the ledgers, replacing the AP Summary line with the name of a specific fixed asset that did not exist at the facility.16 DISCOVERY The fraud scheme was noticed by company whistle-blowers, whose concerns seemed to be disregarded. One anonymous e-mail was sent to the auditors saying the company “fleeced shareholders” and listed four suspicious accounting practices. E&Y's review determined that the issues raised by the author of the e-mail “did not affect the presentation of HealthSouth's financial statements.” Another e-mail, from Michael Vines and forwarded to audit partner Jim Lamphron, was passed to CFO William Owens and George Strong, the audit committee chairman. Owens provided fake invoices for the questioned entries and dismissed the seriousness of this e-mail, indicating that Vines was just a disgruntled former employee.17 (Vines had made frequent comments about the company's accounting on the employee electronic chat room and was regarded as something of a pest.)18 In October 1999, Diana Henze, assistant vice president of finance, noticed that earnings would jump with each iteration of quarter-end consolidations. She confronted Owens, who was controller at the time, and accused him of fraud. When she went to Kelly Cullison, the company's corporate compliance officer, she was told that the compliance officer “did not have access to the supporting documents” to determine whether or not the journal entries were legitimate. Henze brought the matter to her supervisor, cofounder Tony Tanner, who told her the entries were the result of reversing out a number of reserves and that the matter was closed.19 Henze said that she was subsequently passed over for a promotion that would have given her more involvement with the books. When she asked why a less-qualified person got the job, Owens told her, “You have made it clear you won't do what we asked.”20 Page C16 William Owens finally went to the authorities when his wife threatened to divorce him because she thought (correctly) that he would end up in jail.21 Owens agreed to wear a wire when meeting with Scrushy. Scrushy is on tape as saying, “You got accountants signing off on all this.” In an impromptu meeting at a lake, Scrushy is recorded as telling Owens, “Just remember, I got eight kids. I got a bunch of babies at home. They need their daddy.” Scrushy also told Owens, “If you want to go public with all this, get ready to get fired, and everyone goes down with you,” according to the transcript of the recording that Owens made.22 Once Owens came forth, the investigation quickly uncovered the massive fraud as other employees quickly cut deals with prosecutors. Scrushy was a local hero in Birmingham with supporters in all corners. A lavish donor to local colleges, libraries, and medical centers, he was also a regular preacher at area churches. He even aired his own TV talk show each day before he appeared in court and hosted his own website (www.richardmscrushy.com).23 His defense attorneys sought to depict him as a detached leader and visionary rather than a micromanager with unchallenged influence. In the end, he was acquitted of all charges in what many see as a blow to enforcement of the Sarbanes-Oxley Act (Scrushy had certified statements on the 10-K dated August 14, 2002, under the Sarbanes-Oxley Act).24 Jurors said key witnesses were not credible, and the prosecution failed to present substantial evidence linking the fraud to Scrushy: “The smoking gun wasn't pointing toward Mr. Scrushy.”25 Scrushy subsequently settled claims from the SEC by paying $81,000,000.26 However, in October 2006, he was convicted of improperly paying $500,000 to a campaign of former Alabama Governor Don Siegelman in exchange for a seat on a hospital regulatory board. He was sentenced in June 2007 to nearly seven years in prison.27 In July 2009, a jury awarded $2.88 billion in a civil suit brought by HealthSouth shareholders. It is believed to be the largest penalty ever levied against one executive. This case was brought before a lone judge, not a jury.28In April 2011, the Alabama Supreme Court denied Scrushy's appeal of the verdict.29 Scrushy was released from prison in 2012 and now is on the speaker circuit.
DISCUSSION QUESTIONS
What are several red flags that E&Y either was or should have been aware of in the audit of HealthSouth?
What procedures can auditors perform to detect fraudulent entries made during the consolidation process?
How can auditors determine a company's true “tone at the top”? What is the appropriate response by auditors to information from “disgruntled” employees?
HealthSouth concealed the fraud by keeping the fraudulent transactions below $5,000. What recommendation would you have to E&Y to improve its sampling practices?
REQUIRED: Prepare a report to management to address the questions above. Format: 11 pt or 12 pt; Times Roman; 1.15 space. No limit
In: Accounting
Facts: In late August 2011, Natasha Hawkins (plaintiff) applied for a second life insurance policy on her 19-year-old son, Khalil Wallace, from Globe Life Insurance Company. After Globe received Ms. Hawkins’s enrollment form and premium payment but before Globe formally approved the policy, Khalil was murdered. Globe refused to pay the policy proceeds, and Ms. Hawkins filed suit.
Judicial Opinion:
SCHNEIDER, Magistrate Judge Globe mailed plaintiff an advertisement for life insurance protection. The materials included these materials:
Pamphlet 1
First-day coverage
No waiting period
Buy direct by mail
Choose $5,000, $10,000, $20,000, $30,000 or $50,000 coverage
$1.00 for $50,000
No medical exam—just answer a few health questions
Pamphlet 2
Start a Life Insurance Policy for Only $1 Letter
No Waiting Period (2x)
Buy Direct by Mail (2x)
$1.00 Starts Up To $50,000 Life Insurance Coverage
Globe gives you life insurance coverage that costs only $1.00 to start!
There’s no medical exam . . . just answer a few Yes/No health questions
You buy directly through the mail
Answer A Few Yes/No Health Questions (2x) Enrollment Form/Application
No waiting period.
$1 Buys Up to $50,000
$1 Buys $50,000—Direct by Mail
You can choose from $5,000, $10,000, $20,000, $30,000 or even $50,000 life insurance coverage
There is no medical exam—just a few Yes/No health questions.
Globe’s enrollment form contains Question 2.b. This question asks whether in the past three years Khalil “had or been treated for . . . drug or alcohol abuse.” Plaintiff was aware her son was previously arrested and charged with multiple drug offenses. Subsequent to one of Khalil’s arrests, plaintiff arranged for Khalil to attend a few counseling sessions with a general therapist. However, plaintiff denied any knowledge of what her son discussed with his therapist. She also denied any knowledge that her son used drugs. Plaintiff testified that despite her son’s troubled past she did not believe he abused drugs. She noted that her son was an athlete and never showed symptoms of drug abuse.
After plaintiff mailed the enrollment form, Khalil was charged on September 2, 2011 with possession of marijuana. Plaintiff learned about this arrest within a few days but did not inform Globe.
Plaintiff’s application was subject to a “Quality Assurance” (QA) follow-up call. Globe attempted to telephone plaintiff 21 times and sent two letters to verify the truth of the statements on her enrollment form.
On September 20, 2011, plaintiff’s son disappeared into a van with unidentified individuals. On September 22, 2011 plaintiff was informed that her son was last seen two days prior and that his cell phone was found in Philadelphia. The same day plaintiff filed a missing persons report with the state police. Despite these events, plaintiff testified she was not concerned for her son’s safety following his disappearance because he would often be away from home for periods of more than two weeks at a time. Additionally, plaintiff testified that when she filed the missing per- sons report the police believed her son had run off to avoid charges from his recent arrest.
On September 28, 2011, plaintiff called Globe to complete the QA. During the call, . . . [t]he Globe representative asked plaintiff whether the proposed insured had a history of drug or alcohol abuse. Plaintiff again denied any knowledge that her son had a history of drug or alcohol abuse or treatment and affirmed that her answers were true to the best of her knowledge.
Following the QA call, Globe formally approved plaintiff’s policy on October 1, 2011. On October 6, 2011, six days after the policy was issued, Khalil Wallace’s body was found. The cause of death was determined to be multiple gunshot wounds inflicted on September 20, 2011, the day Khalil went missing. Plaintiff called Globe to report her son’s death on October 24, 2011 and submitted her claim for payment on February 6, 2012. On February 21, 2012 Globe advised it was investigating the claim. Following an exchange of letters between Globe and plaintiff, on July 6, 2012, Globe advised that it was voiding its policy because plaintiff misrepresented material facts during the application process.
Plaintiff argues the solicitation materials she received from Globe along with the fact that she answered “No” to all of the health-related questions led her to believe that she received interim coverage when Globe received her application materials on September 9, 2011.
Recognizing that the language of insurance con- tracts is often the result of technical semantic constructions and unequal bargaining power, New Jersey courts interpret insurance policies to give effect to the reasonable expectations of an objectively reasonable policyholder. As a result, courts resolve ambiguities in insurance contracts against the insurer.
The Court finds Globe’s promotional documents are ambiguous and should be interpreted to meet the reasonable expectations of an objectively reasonable applicant.
Globe’s pamphlet expressly states that Globe is offering “First-day coverage”. [T]he statement is easily read to indicate that interim coverage begins immediately. Directly underneath “First-day coverage” are the representations that applicants can “Buy direct by mail” with “No waiting period.” These statements read together indicate that an applicant can submit an application by mail and receive immediate interim coverage.
The pamphlet further states that if the applicant’s responses to the application show good health, coverage begins after the application is approved. Here, plaintiff answered “No” to all of the health-related questions in the application. Thus, it was her reason- able belief that since she answered that the insured was in “good health,” interim coverage applied.
The large and bolded font emphasize that plaintiff was reasonable in expecting interim coverage even before her policy was formally approved. The body of Globe’s letter also states that $1.00 “starts” up “coverage”. Although the letter later states in non-bolded text that the policy will be mailed once the application is “approved,” Globe still fails to qualify what that entails. Further, even if a reasonable applicant understood that “approval” included an underwriting process, it does not eliminate the impression that interim coverage exists while the application is processed.
Globe’s letter also states that “Your FULL protection starts the first day your policy is issued. There is no waiting period.” These sentences create ambiguity because Globe states that full protection starts when the policy is issued, but simultaneously promises no waiting period. Thus, the impression is created that policy issuance and coverage is immediate. Globe would have a better argument if instead of its ambiguous language it would have stated, “Your coverage starts only IF your policy is approved by Globe after receipt and review of your completed application”, and if it omitted the promise of “first-day coverage” and “no waiting period.”
Globe’s font sizes and text locations further plain- tiff’s impression that she received interim coverage. Representations concerning immediate coverage such as “$1.00 Starts Up to $50,000 Life Insurance Cover- age” and “No waiting period” appear in bold and large font while the “approval” language, which Globe emphasizes in support of its argument, appears in the authorization in much smaller font.
New Jersey courts “depart from the literal text and interpret [a policy] in accordance with the insured’s understanding, even when that understanding contradicts the insurer’s intent, if the text appears overly technical or contains hidden pitfalls, cannot be under- stood without employing subtle or legalistic distinctions, is obscured by fine print, or requires strenuous study to comprehend.”
Besides the ambiguity in Globe’s solicitation materials there was another good reason for plaintiff to objectively believe she had interim coverage. This belief is supported by considerable New Jersey precedent. . . . “[T]he very acceptance of the premium in advance tends naturally towards the understanding of immediate coverage though it be temporary and terminable.”
Globe received plaintiff’s application materials on September 9, 2011 and deposited the premium check on September 12, 2011. For the reasons described above, this initiated interim coverage on Khalil’s life as of September 9 or 12, 2011. Accordingly, plaintiff had interim coverage when Khalil died on September 20, 2011.
The law draws a distinction between misrepresentations made in response to an insurance company’s objective and subjective questions. If the question is objective, even an innocent misrepresentation can warrant rescission and constitutes equitable fraud. Courts are more lenient when the question is subjective.
The application question at issue: “In the past 3 years, has the Proposed Insured had or been treated for . . . drug or alcohol abuse[?]” Plaintiff answered this question “No.” Globe asserts that because plain- tiff was aware that her son was arrested for drug-related crimes and attended general therapy she should have answered the question in the affirmative. The Court disagrees. The problem with Globe’s argument is that it did not ask the right question. Globe did not ask if Khalil was ever arrested. Nor did it ask if Khalil ever possessed or distributed drugs, or was accused of same. Globe’s question only asks if Khalil had or was treated for drug abuse. Globe has failed to point to any evidence that this occurred. [T]he Court finds that Globe has not satisfied its burden of showing that plaintiff misrepresented any answers on her application.
Relatedly, plaintiff did not have a duty to inform Globe about her son’s September 2, 2011 arrest for marijuana possession. Again, Globe never inquired whether the insured had a criminal history on the insurance application. Additionally, that fact that Khalil’s arrest is not material is evidenced by the fact that Globe did not ask plaintiff any questions during the September 28, 2011 QA call which would have required her to inform Globe about the arrest.
Globe’s motion for summary judgment is denied.
Case Questions:
1. What were the problems with Globe’s marketing materials?
2. Develop a timeline for the events from the time of the policy mailer. Why are Khalil’s arrest and previous counseling not required to be disclosed?
3. Describe how Globe should have asked its questions.
In: Operations Management
Multiple Choice: Circle the most correct answer (20 questions, 1 mark each)
1) When we talk about predictability being a major element of law, we mean that
a. although the law is predictable, the outcome of a given dispute between people is not.
b. people should be more likely to be able to predict when they can circumvent a law.
c. the law itself is not predictable, only the cases that are decided.
d. by using common sense, the decision of any court can be determined in advance.
e. people should be able to find out where they stand and how to act with reasonable certainty.
2) Gurpreet Singh is employed by Nikhil’s Groceries. Arun, the owner of Arun's Groceries approaches Gurpreet and convinces Gurpreet to leave Nikhil's Groceries and work for Arun's Groceries. Nikhil's Groceries may sue Arun's Groceries for
a. breach of employer–employee contract.
b. breach of employee contract.
c. interference with employee affairs.
d. breach of contract.
e. inducing breach of contract.
3) The role of tort law is to
a. compensate victims for harm suffered from the activities of others.
b. assist judges by providing rules to determine how much money to pay victims of crime.
c. punish wrongdoers in the same way that criminal law punishes criminals.
d. determine who caused a motor vehicle accident.
e. impose strict rules to prevent the commission of crimes.
4) In a lawsuit against a professional for a breach of duty of care, a prudent plaintiff should
a. sue in contract for breach of contract for failure to properly perform services.
b. sue in tort for breach of fiduciary duty.
c. sue in tort for negligence arising from a breach of duty of care.
d. sue in tort for negligence arising from a breach of duty of care and in contract for breach of contract for failure to properly perform services.
e. sue in contract for negligence arising from a breach of duty of care and sue for breach of fiduciary duty.
5) The contractual requirement of ‘consideration’ provides that
a. the contract must be given careful consideration before it is entered into.
b. the offeror must pay cash for the offeree's promise to perform an act.
c. an offeree must pay cash for the offeror's promise to perform an act.
d. each party must give something of value in exchange.
e. what is exchanged by the parties must be of equal value.
6) Jaspreet Singh buys a second-hand car from Amit, who is not a retail seller. The province in which the sale takes place does not require that the car be certified. After two months, Jaspreet finds that the car requires substantial repairs. In this case,
a. there is a breach of the implied condition of fitness for purpose.
b. there is a breach of the implied condition of merchantable quality.
c. there is a fundamental breach of contract.
d. there is a breach of the implied warranties under the Sale of Goods Act
e. the maxim caveat emptor applies.
7) Contracts between parties of unequal bargaining power that are unfairly advantageous to the powerful parties have long been considered
a. bilateral contracts and void.
b. unilateral contracts and voidable.
c. unconscionable contracts and voidable.
d. non est factum (a written agreement is invalid because the defendant was mistaken about its character when signing it).
e. contrary to the Criminal Code of Canada.
8) Capacity to contract means
a. the ability to make an offer or accept an offer.
b. the competence to enter into a legally binding contract.
c. the ability to pay damages in the event of a breach of contract.
d. the ability to make a promise.
e. the ability to comprehend the terms of a contract.
9) The difference between a negligent misrepresentation and a fraudulent misrepresentation is that
a. a fraudulent misrepresentation requires only a breach of duty of care and skill, while a negligent misrepresentation requires at least some guilty knowledge or willful disregard of the falsity of information provided.
b. a negligent misrepresentation requires only a breach of duty of care and skill, while a fraudulent misrepresentation requires at least some guilty knowledge or willful disregard of the falsity of information provided.
c. there is no practical difference between a fraudulent misrepresentation and a negligent misrepresentation
d. a fraudulent misrepresentation does not require guilty knowledge or willful disregard of the falsity of information provided, while a negligent misrepresentation does.
e. negligent misrepresentation doesn’t exist.
10) We need to have law because it
a. regulates individuals’ interactions with one another.
b. gives the government the power to act for the benefit of society in general.
c. provides an element of certainty in determining contractual and property rights.
d. protects persons, property, and society, and prohibits conduct that society believes is harmful.
e. all of the above.
11) When we say that the law is linked to moral and ethical standards, we mean that
a. the law is based on ethics.
b. ethical behaviour is generally considered to be a higher standard.
c. ethics and morality are one and the same.
d. the fundamental truths that give rise to the law include ethics and morality.
e. the moral and ethical values of a society as a whole shape the development of the law.
12) Law is derived from a variety of sources. These include the constitution, legislation, and
a. the Supreme Court of Canada and subordinate legislation.
b. court decisions handed down by judges.
c. statements made by ministers and administrative rulings.
d. media reports and other news.
e. the cabinet.
13) When two or more parties have a legal dispute, often the cheapest form of resolving the dispute is by
a. litigation in the court.
b. mediation.
c. arbitration.
d. an out of court settlement.
e. none of the above.
14) Which one of the following is just cause for dismissal?
a. absenteeism twice in the last year
b. habitual negligence or incompetence
c. tardiness once in the last two years
d. no work to do
e. refusal to work in an unsafe work environment
15) Jaspreet Singh had worked for his employer for 15 years when he was terminated without notice or pay in lieu of notice. He filed a lawsuit for wrongful dismissal as he felt there was no just cause for the termination, although he did believe there had been a plot to get rid of him. Which of the following is correct?
a. In the absence of just cause, Jaspreet would likely be entitled to reasonable pay in lieu of notice, but no punitive damages unless the employer had committed some tort related to Jaspreet.
b. In the absence of just cause, Jaspreet would likely be entitled to reasonable pay in lieu of notice and punitive damages as he was fired without just cause.
c. In the absence of just cause, Jaspreet would likely be entitled to reasonable pay in lieu of notice and punitive damages due to the employer's malicious and outrageous act.
d. Jaspreet should have filed his lawsuit as a case of constructive dismissal in order to win punitive and aggravated damages.
e. Even if there was no just cause, Jaspreet likely would not be entitled to any compensation as he did not suffer actual psychological harm as a result of losing his job.
16) Which of the following statements more accurately describes an employee rather than an independent contractor?
a. The person provides his or her own tools.
b. The person determines his or her own work schedule.
c. The person is an essential part of an employer's organization.
d. The person has a high level of financial risk.
e. The person is free to represent others in the same business.
17) Which of the following statements with regard to the characteristics of civil and criminal actions is true?
a. The person who begins a civil action is usually called the prosecutor.
b. A civil action is a private action; that is, a person or persons sue another or others usually for the purpose of being compensated for injury or loss suffered.
c. If a person is convicted of a criminal offence, he or she cannot also be sued in a civil action by the victim.
d. In a criminal case, an individual person is taking the action against the accused.
e. The prosecutor must prove his or her case based "upon a balance of probabilities."
18) With regard to the relationship between the judiciary (courts) and the legislatures, which of the following is true?
a. Common law overrides case law on the same point.
b. The courts have no authority to affect a statute once it has been passed by our elected representatives in the federal Parliament.
c. A provincial statute could be struck down by the courts for being contrary to the Charter of Rights and Freedoms.
d. The courts have no power to declare a provincial statute to be void; only federal statutes can be struck down by the courts.
e. The courts cannot affect the meaning of the statute through subsequent interpretation.
19) Which of the following is an ingredient necessary to form a contract?
a. exemption clauses
b. fairness
c. privity
d. capacity
20) With regard to the process of a civil law suit, which of the following is true?
a. The plaintiff must prove his or her case on the balance of probabilities, not beyond a reasonable doubt.
b. The statement of claim is a document registered by the plaintiff that contains a summary of the allegations that support the cause of action.
c. Any admission by the defendant at the examination for discovery can be used against him or her by the plaintiff at trial.
d. A counterclaim is an action by the defendant back against the plaintiff.
e. All of the above
True or False: Circle the correct reply (a or b) (10 questions, 1 mark each)
21) In any jurisdiction of Canada, such as Ontario, the rule is that the decision of a higher court is binding on a lower court.
a. True
b. False
22) Where a party inadvertently uses the wrong words in stating the terms of a contract, and another party enters into the contract, the court may set aside the contract if a reasonable bystander would conclude that the party had made a mistake.
a. True
b. False
23) If one party breaches a condition of a contract, the other party will generally be entitled to repudiate the contract.
a. True
b. False
24) When an offer is proposed to an interested party, the form of acceptance does not matter even if a preferred method of communication is stipulated within the offer.
a. True
b. False
25) Where a party inadvertently uses the wrong words in stating the terms of a contract, and another party enters into the contract, the court may set aside the contract if a reasonable bystander would conclude that the party had made a mistake.
a. True
b. False
26) If one party breaches a condition of a contract, the other party will generally be entitled to repudiate the contract.
a. True
b. False
27) A void contract is one that is deemed in law to have never been created.
a. True
b. False
28) When an employee is dismissed for just cause, he or she is not entitled to reasonable notice or pay in lieu of notice.
a. True
b. False
29) The primary purpose of tort law is to punish wrongdoers.
a. True
b. False
30) An employer is responsible for only those torts committed by an employee that take place while the employee is doing what he was employed to do.
a. True
b. False
In: Economics
I. You are the Auditor for Winter Valley. You have noticed that the town is recording all transactions in the General Fund. The town has not established any other funds although they have the following activities:
● They are constructing a new City Hall
● They are paying interest and principal on Winter Haven Municipal bonds
● The have established a $3,000,000 endowment fund to fund the maintenance of the town library into perpetuity.
● They have passed a gasoline tax surcharge to fund the planting of flower beds on the sides of central highway.
Required: Prepare a one to two page memo explaining the following:
1. The reasons governments must establish funds.
2. The accounting method and measurement focus used by the governmental funds.
3. The purpose of the General fund 4. An explanation of the additional funds which need to be established to more accurately account for the activities of Winter Valley to assure appropriate accounting and budgetary control.
● II. Write a one page critical analysis of the following article:
Chicago’s Murder Problem By FORD FESSENDEN and HAEYOUN PARK MAY 27, 2016 Chicago police officers at a crime scene in Greater Grand Crossing, one of the city’s most violent neighborhoods, where a 13-year-old boy was shot in both legs in April. There was a time when it looked as if Chicago would follow New York and Los Angeles into a kind of sustained peace. Then progress stalled in 2004, and the city has been through some harrowing years leading up to another alarming spike in homicides this year. \ Already embroiled in a crisis over race and police conduct, Chicago now faces a 62 percent increase in homicides. Through mid-May, 216 people have been killed. Shootings also are up 60 percent. So what’s going on in Chicago? It’s complicated, but a comparison with New York is a good place to start. Both cities began the 1990s with historically high homicide rates; both have diverse populations, including large numbers of blacks, Hispanics and whites, and a wide range of economic fortune as well. Chicago has about the same population as Brooklyn, but a year’s worth of homicides in the two places shows an astonishing difference in the toll. Guns Are a Key Difference People who know both cities say there are some significant differences in policing, especially around the issue of guns. The homicide rate in Chicago is just a little higher than in New York when guns aren’t involved. But when it comes to shootings, both fatal and not, Chicago stands out, suggesting a level of armed interaction that isn’t happening in New York. Chicago has a reputation for strict gun laws, and gun rights advocates often point to it as proof that gun regulation doesn’t reduce violence. But its laws aren’t what they used to be: Federal courts struck down its ban on handgun ownership in 2010, and its ban on gun sales in 2014. And a New York Times analysis showed guns were easily available from nearby jurisdictions, especially Indiana. About This Project And Chicago is more lenient about illegal handguns than New York, prescribing a one-year minimum for possession versus three and a half years in New York. An attempt to match the New York law in 2013 was rejected by the Illinois legislature out of concern for skyrocketing incarceration rates for young black men. New York also hired a lot more police officers in response to the crime of the 1990s, and, during its stop-and-frisk era of the 2000s, steeply increased gun enforcement. Recent studies, including one that looked at increased police presence in London after a terrorist attack, have suggested more police might mean less crime, said Jens Ludwig, the director of Crime Lab at the University of Chicago, which studies crime in both Chicago and New York. Chicago’s Police Department, overwhelmed, can respond only to the most serious problems, leaving citizens to feel responsible for their own security, he said. “Everyone has to establish deterrence on a retail basis,” he said. “People carry guns in public because other people are carrying guns. It’s literally an arms race, a vicious cycle. There are lots of indications that New York City, by taking guns more seriously and hiring more officers, has gotten a lot of guns off the streets, creating a virtuous cycle.” Gang Wars in Chicago Drive Much of Its Violence In Chicago, gang disputes are clearly a big part of homicides, said John Hagedorn, a professor at the University of Illinois at Chicago who studies Chicago gangs. “But these are not the same kind of disputes as before – they’re more localized disputes.” Many of Chicago’s gangs have fractured, leading to more violence, said Arthur Lurigio, a criminology professor at Loyola University Chicago. While Latino gangs have remained more hierarchical, black gangs have splintered into small, disparate factions, whose disputes are less over territory and profits, and more over personal insults or shames, often fueled by social media, he said. “Young people are making a lot of indirect threats toward cliques and rival gangs that are being interpreted as being threatening,” said Desmond Patton, a professor at Columbia University who has studied violence on social media. “Tagging is the conversation starter that could lead to someone getting a gun.” In addition to making threats, individuals at times post their location on social media to prove to rivals that they’re tough, he said. In one well-known instance, Gakirah Barnes, a Chicago gang member who was rumored to have killed or shot up to 20 rival gang members, referenced an address she frequented on Twitter. In the tweet, provided by Dr. Patton, Ms. Barnes says “Lz,” which has multiple meanings in Chicago gang cultures, including living life, at address number 6347. Later that day, she was shot and killed near the address. Tweet from Gakirah Barnes’s account Gangs figure in many homicides in New York as well, but recent polls by The New York Times suggest that the gang problem may be worse in Chicago. Although there were differences in the way the polls were conducted, blacks and Hispanics in Chicago expressed significantly less hope than their counterparts in New York that their children would escape gang life. New York City Dr. Hagedorn also points out that though the city also has a lot of Latino gang members, Chicago’s violence is much higher among African-Americans. Three quarters of all homicide offenders and victims are black, he said. “The shootings today are more spontaneous over day-to-day humiliations of youthful African-Americans,” he said. Crime Persists in Chicago’s Most Segregated Neighborhoods Whether exacerbated by gangs or guns, though, Chicago’s killings are happening on familiar turf: Its poor, extremely segregated neighborhoods on the South and West Sides. And many say that is Chicago’s real violence issue. “Where do gangs come from? They tend to take root in the very same neighborhoods that drive these other problems,” said Robert J. Sampson, a professor at Harvard and the author of “Great American City: Chicago and the Enduring Neighborhood Effect.” “You can’t divorce the gang problem from the problem of deep concentrations of poverty.” “What predicts violent crime rates is concentrated poverty and neighborhood disadvantage, and what determines concentrated poverty is high levels of black segregation combined with high levels of black poverty,” said Douglas S. Massey, a sociology professor at Princeton University. In Chicago, homicide rates correspond with segregation. While many areas have few or no killings, the South and West Sides are on par with the world’s most dangerous countries, like Brazil and Venezuela, and have been for many years. STATEN ISLAND But segregation in New York is nothing like in Chicago: The perfectly isolated neighborhood – where every man, woman and child is the same race – is rare in New York. Less than one percent of the population lives in such areas, and most of them are white. In Chicago, 12 percent of the black population is in a census block group that is 100 percent black. Racially segregated minority neighborhoods have a long history of multiple adversities, such as poverty, joblessness, environmental toxins and inadequate housing, Professor Sampson said. In these places, people tend to be more cynical about the law and distrust police, “heightening the risk that conflictual encounters will erupt in violence.” “The major underlying causes of crime are similar across cities, but the intensity of the connection between social ills and violence seems to be more persistent in Chicago,” Professor Sampson said. “You don’t get that kind of extensive social and economic segregation in many other cities.” Sources: nyc.gov; City of Chicago Data Portal; Andrew Beveridge, socialexplorer.com; Federal Bureau of Investigation; Los Angeles Police Department; Bureau of Justice Statistics; New York Times/Kaiser Family Foundation Chicago poll; NYT-Siena NY poll. Write a one page critical analysis of the preceding article.
In: Accounting
1.As a manager, you may find the constant pressure to produce praise exhausting.
a.When that happens, it is permissible to hold off until you are fully refreshed
b.When that happens, praise appears “forced” and disingenuous
c.You should never praise employees more frequently than the amount of praise that you receive
d.But remember that however unimportant these compliments seem to you, they’re fulfilling a genuinely vital psychological need in your employees
2.By giving the employee the opportunity to explain what’s going on, you’re communicating that
a.you see them as a person. Your employee probably feels very vulnerable in these moments, and they need to believe that you want to treat them fairly and care about how they perceive the situation
b.you will accept excuses
c.you acknowledge that you are out of touch with your team
d.you conjure up the worst fears of a Theory X manager
3.According to Fuller and Shikaloff, employees are more engaged if
a.they are sufficiently (financially) rewarded for their work
b.they are better educated
c.they work for a manager who is working at least as much as they are
d.management will just get out of their way so they can
get their work done
4.The more a manager knows about the people who work for them,
a.the less confident the manager will be in the employee’s work potential
b.the more intrusive they will become in the employee’s personal life
c.the more he/she will be able to control/manipulate the employee
d.the more they’ll be able to motivate them, coach them,
and help them grow
5.High performers typically
a.place a high value on their own development and see it as a sign that your company is a good place to build a career
b.avoid working for a company without a robust training program
c.find ways to build additional skillsets in the people they work with
d.are demanding (in terms of higher pay/greater benefits)
6.Fuller and Shikaloff have consistently found that larger manager networks correlate with
a.greater employee turnover
b.higher pay levels
c.the creation of a “good ole boy” network
d.a number of different positive business outcomes
7.Frederick Herzberg, a psychologist who studied
employees’ motivation, argued that
a.a manager can effectively incentivize employee development
through additional pay
b.different employees respond to different incentives, thereby making it impossible to find a common approach
c.money is a less powerful motivator than opportunities to learn, advance in their responsibilities, and be recognized for their achievements
d.an employee who does not take the lead in defining and pursuing incentives for professional growth is an employee who will flame out quickly
8.Once maximizers have made a choice, they are likely
to
a.push ahead with their decision, accepting it as the best possible approach
b.find ways to quickly validate their decision
c.apply their new-found approach to an array of business concerns
d.second guess themselves and wonder whether they could have made a better choice. They are more prone to making social comparisons in order to gauge the optimality of their decisions
9.When you delegate, you should see your role
as
a.a micromanager
b.a monitor and a coach
c.hedgehog
d.an enabler
10.Behavioral economist Herbert Simon argued that
a.the goal of utility maximization, as formulated by rational
choice theory, is nearly impossible to achieve in real
life
b.slackers come up for reasons why they can’t maximize
c.the higher the education, the greater the maximization
d.prospective employees should be tested to determine
how well they maximize
11.Many managers make the following mistake:
a.Making an employee’s personal happiness the highest priority produces optimal work outcomes
b.They assume that the personal happiness of their employees conflicts with the needs of the business, and that they must choose between the two
c.An employee who brings his/her personal interests to the workplace obviously has their priorities mixed up
d.They try to juggle the personal interests of all employees with the business’ interests, satisfying neither in the end
12.Delegation of duties
a.gives you more time to focus on activities that require your unique skills and level of authority
b.sends a clear signal to employees exactly who is in control
c.gives you more time with friends and family
d.is discouraged because it makes subordinates less dependent on you
13.Compared to strategic planning, operational planning
a.takes less time
b.Is more specific, less comprehensive, done at a lower level,
involves the relative allocation of small amounts of resources, is
often repetitive in nature and covers a short time span (i.e., one
year or less)
c.begins in the C-suite and filters its way down
d.begins on the floor and filters its way up
14.Paul Hersey says situational leadership
a.requires that employees see a consistent approach to problems by managers
b.isn’t different strokes for different folks. It’s different strokes for the same folks, depending upon what it is you’re trying to get done and what their performance readiness is
c.leaves managers open to the accusation of favoritism among employees
d.effectively leaves the employees in charge of the business. (It is Theory Y run amuck.)
15.According to Robinson’s study, engaging in strategic
planning alone
a.was not found to have such a direct link to high performance
b.was more valuable than engaging in operational planning alone
c.resulted in higher performance over the long term
d.is something that produces intangible benefits difficult to measure
16.A common tactic to diffuse the awkwardness in the feedback process is to:
a.delegate the responsibility to someone who is not personally invested in the outcomes
b.break the feedback into many digestible bits and dole it out over a succession of days
c.do it over lunch
d.open with praise, move to criticism, close with
praise
17.Operational planning refers to:
a.the process leading to the development of short range goals, action plans and procedures to guide the handling of day to day operations
b.a global understanding of a desired endpoint for the organization
c.determination of the firm's mission, its principal strategies, and the key goals these elements are intended to accomplish
d.the oversight required to identify/pursue leading-edge technology
18.According to Robinson’s research, businesspeople
generally thought that operational planning was
a.less important than strategic planning
b.equally important with strategic planning
c.more important to the success of their firm than strategic planning
d.is sector-specific (it is important in certain business sectors, but not in others)
19..A satisficer is
a.agonizes over making a less-than-perfect decision
b.is immune to the criticism that he/she lazy
c.less likely to experience regret, even if a better option presents itself after a decision has already been made
d.someone who stalls out very quickly in their professional careers
20.Satisficers are individuals who
a.quickly come up with excuses about why they can’t do their best
b.are pleased to settle for a good enough option, not necessarily the very best outcome in all respects
c.have a lower appreciation for quality than do maximizers
d.place speed over quality
21.The best time to give feedback, whether positive or
constructive, is
a.after the dust has settled
b.at the end of the workday
c.in the moment
d.right before the employee goes on
vacation
22.A good manager praises personally and often, but
a.not in front of the employee’s fellow employees out of concern for creating envy
b.usually includes it with a mention of perceived employee deficiencies
c.they make sure their accolades are as specific as possible, tailored to their own self-perceptions
d.are cautious not to do it until an employee has
“achieved tenure.”
23.According to Herbert Simon, to make “best” choices
a.listen to your gut feelings, don’t worry about getting the very best all the time, and evaluate each outcome on its own merits rather than against others
b.find a mentor who is also a maximizer
c.go back to school and take a class in statistical analysis
d.create a large network of associates who can provide important feedback
24.The "high" operational planners experienced
a.higher sales and perceived performance, but ones that were not justified by the work and expense of operational planning
b.lower sales and perceived performance than those who prioritized strategic planning over operational planning
c.a temporary boost in productivity that tails off quickly
d.significantly higher sales per employee and
significantly higher levels of perceived performance than did the
firms that did not engage in "high" planning levels across each
functional area
25.A good manager should
a.avoid monitoring the work-life balance of his/her employees, as they will quickly get overwhelmed with the personal problems of employees
b.check in frequently to make sure work isn’t disrupting important life functions like health, family, and leisure.
c.create/enforce rules for employees about achieving the
right work-life balance
d.should avoid discussing with employees the importance of a
healthy work-life balance for fear of appearing to be
hypocritical
In: Operations Management
Flight Plan Consulting, Inc.
Cost of Capital and Firm Valuation Project
The Company background
Bill Gibson began Flight Plan Consulting, Inc. (FPC) in 1990. The company offered very specialized consulting services to corporate flight departments, i.e., to those companies that have their own planes for purposes of executive transportation. This consultancy focused on the cost versus benefit considerations of the acquisition and use of corporate aircraft. Bill Gibson was ideally suited for this line of work; he was both a commercial pilot and had held an adjunct position as a finance professor in a university near his home. His company had its first and only public offering of stock in 1995; at that time revenue had reached $5 million, and the employee headcount was up to ten. In the twelve years since the company's inception, sales, earnings and the company's fine reputation have increased steadily. The company's financial information, and selected capital market and industry data and information are provided in Table 1.
A major contributor to the company's good fortunes is a particular area of concern taking place in many corporate flight departments around the United States. This concern is known as “fractional ownership” versus full ownership of corporate aircraft. Gibson, while not a corporate pilot, understood well the costs, benefits, concerns and industry dynamics of corporate flight departments and the companies that supplied the aircraft. This knowledge and breadth of understanding formed the basis for his consulting company.
Fractional ownership, in its simplest terms, is when several companies, usually three or four, share the ownership of a corporate aircraft. For example, a company that wishes to buy fractional ownership will buy or lease a 1/5 interest in an airplane. Such an arrangement would allow for approximately 160 hours per year of usage. The total cost would depend upon the type of aircraft chosen. The fractional purchaser or lessee would also have access to aircraft crew, maintenance and everything else needed to complete the operation of a corporate aircraft.
The interest in fractional ownership has several origins, the most prominent of which is the corporate “downsizing” and “rightsizing” of the decade of the 1990's. The closing of a corporate flight department could possibly mean a significant reduction in total corporate overhead expenses. Moreover, fractional ownership may be more “flexible” in the manner in which the services are customized for each individual fractional owner. A rule of thumb among consultants was if the aircraft will be needed between 100 and 350 hours per year, fractional ownership would likely be the best option. [1]
Within that environment, FPC has become a major source of consulting services for firms that are moving from having an in-house flight department to fractional ownership, or are considering corporate aircraft acquisition for the first time. The operations of FPC involved Gibson or one of his five consultants working with the client to determine the most efficient manner in which to acquire the use of a corporate aircraft. The consulting relationships were always quite involved and of long duration. A consultant's reputation, however, depended upon the word-of-mouth goodwill of each client.
In the last year or so, Gibson had considered expanding by acquisition. There were several smaller consultancies in the same line of business as FPC. Gibson, after extensive discussions with his investment bank, had decided to focus upon two firms. Either one of those two would permit him immediately to acquire clients in Canada or Germany. The more pronounced international reach was exactly what FPC's strategic plan called for. While the company had done business in both Canada and parts of Western Europe for several years, the companies being considered for acquisition had very positive reputations in their respective locations.
Cost of Capital
Gibson believed that long-term capital from external sources would be needed to finance the acquisition. He believed FPC's common stock to be valued fairly at present. He also believed that the company's excellent bond rating would make a debt issue feasible.
Although the company’s board of directors was made up of successful and knowledgeable people from a variety of backgrounds, not all of them were intimately familiar with finance; it was, therefore, essential to answer any questions they had with authority. The firm’s investment in any asset, including other companies, was a result of the strategic plan, which the board had helped to develop and had certainly approved. The cost of capital issue was a very necessary tool in the implementation of that plan. The economic worth of any investment made by FPC would be measured against the firm’s cost of money, its opportunity cost, its cost of capital; terms that Gibson knew were interchangeable. At this crucial stage of the company’s development, he wanted his board to be “conversational” with those terms.
Gibson decided that he had better provide some specific and detailed information to his board concerning the company's cost of capital and its relation to the valuation process. In order to move the process along, Gibson decided to hand over the task of preparing a draft of “Cost of Capital and Acquisition Plans Memo”, as it had come to be called, to Kay Biddle. Biddle was a summer intern employed in FPC's controller's office. She was an MBA student and planned to graduate at the end of the fall semester with a concentration in finance. To construct her memo Biddle wondered how she, in relatively few words, could best show the interrelationship among the firm’s capital structure, the yield on the firm’s debt, and the rate of return on the firm’s equity. All of that information would be a starting point for her explanation.
Acquisition Plans
The board, Gibson believed, also needed to consider the effect of the impending acquisition upon the firm’s sales and net income after-tax. The purpose of the acquisition is to increase sales and income and to diversify the firm in terms of its geographic market. That is a key element in the long-term success of specialized consulting firms in FPC’s line of business.
FPC identified two possible target companies to acquire:
Maple Aviation, a fast-growing company with clients in major Canadian cities, such as Vancouver, Toronto, and Montreal.
Das Flugzeug, an established consulting company providing services to clients in Berlin, Frankfurt, and Munich.
Gibson asked Biddle to calculate the firm values of the above-mentioned targets and include the details in the memorandum. FPC's financial staff had spent considerable time analyzing the target companies’ current and historical financial statements. The analysis helped to determine the level of free cash flows after possible acquisition. The future expected free cash flows are the net cash flows available to the firm's investors after all investment in fixed assets and working capital have been made. The expected free cash flows from Maple Aviation and Das Flugzeug are listed in Table 2 and Table 3, respectively. All values are in US dollars. The last step of firm value calculation is to discount the cash flows at the weighted average cost of capital. The valuation process would help FPC justify the fair costs to acquire the target companies.
Table 1: Selected Firm, Industry, and Capital Market Data
|
FPC, Inc. issued 10-year $1,000-par bonds five years ago. They carried a coupon rate of 6%. The coupons were paid annually. Currently the bond is selling for $883.40. The firm’s stock price has risen to $21.50 recently. It was $10 when issued. The firm’s return on equity (ROE) is 20%, and its dividend payout ratio is 40%. It just paid $1 annual dividend recently. The dividend is expected to grow at a constant rate. Assume the firm is in the 30% (combined) tax bracket. Many specialized consulting firms have a long-term debt to total asset ratio of approximately 40 percent on average. It is considered to be the optimal debt to value ratio. |
Table 2: Free Cash Flows (Thousands of US Dollars) of Maple Aviation
|
Year |
1 |
2 |
3 |
4 and thereafter |
|
Free Cash Flows ('000s of US$) |
320.00 |
400.00 |
480.00 |
Grow at a constant rate of 6% |
Table 3: Free Cash Flows (Thousands of Euros) of Das Flugzeug
|
Year |
1 |
2 |
3 and thereafter |
|
Free Cash Flow ('000s of US$) |
550.00 |
720.00 |
910.00 each year indefinitely |
Your task:
Suppose you are Kay Biddle and you will prepare the memorandum. You have to structure your memorandum around the following items:
Describe the company's core business and the market it serves.
Discuss the role of a corporate board of directors. To whom is the board responsible?
Why are capital market data and information useful when a firm is considering its cost of capital?
Calculate and present FPC's weighted average cost of capital.
Calculate and present the valuation of the two target companies to acquire.
Quantitatively discuss the comparison of the two targets.
In general, describe the effect upon the cost of capital of changes in capital market conditions such as an increase in interest rates, or a decline in stock prices.
Discuss how various factors may affect the cash flow estimates and FPC's project evaluation.
Note:
The format of the report is memorandum addressing to the board of directors. The body of your memorandum must not exceed 6 single-sided letter-size pages of typed 12-point-font double-spaced characters. You may include tables and figures in an appendix and reference them in the body of the report. If you make any assumptions or use information from external sources, state or cite them clearly. Writing and analysis should be performed by each student individually.
[1] The other options are, for less than 100 hours per year, use a charter service; for usage over 350 hours per year, operate an in-house flight department.
In: Accounting
Breadmaking 101: pricing for profits Journal of Critical Incidents "Cost and prices, time for the numbers. What should I do?" A few weeks ago Karen Faulkner finalized the purchase of a bakery which specialized in bread. The prior owner had decided to sell the business because it lacked profitability. There were plenty of customers which suggested to Karen that the problem was with costs or pricing. The last price increase on any of the products was in 2002, ten years ago. Karen thought she could turn things around and would start by repricing her products. "This isn't a hobby, it's a business and if I don't get this right, there won't be a store." Karen was overwhelmed, but she decided to start by repricing the signature product--the honey wheat loaf. "I'll start with the honey wheat loaf; it will be a 'pricing beta test'." Notes and numbers were spread out on the table so that Karen could figure out costs and margins. Once she estimated cost, the difficult decision would be to decide on a price. A loaf of honey wheat still sold for $5.25. If the price needed to increase, what was the best price? What price would cover costs and keep customers buying loaves? Was it better to raise prices incrementally or all at once to avoid sticker shock? The Ingredients Karen was a graduate of a local college of business. She put her degree to use in a variety of ventures. Karen had owned a business in the past inspecting homes. She was comfortable owning and running a business and thought a better pricing strategy could turn the bakery around. The bakery was located in a medium-sized community with a stable economy supported by employment at the local university. The bakery was located downtown and served a lunch crowd from the nearby high school and businesses. The building was next to a small plaza where customers could sit outside for lunch. There were also tables at the front of the bakery. The atmosphere was friendly and the scent of baking bread filled the shop. The bread store was well known and liked in the community. It was perceived as selling healthy, high-quality foods; it sold a premium product. Schools visited on field trips and the free samples drew visitors. If asked to describe her customers, Karen said, "I think of them as shoppers like me; aware of quality and willing to pay a little more for something healthy with no preservatives." The Mix Karen knew she had to price the bread based on what the market would pay, but she also knew she needed to make sure the price was high enough to sustain her business. It made sense to her to use a spreadsheet to estimate costs and contribution margins. "Time to do the numbers." Karen decided to estimate the cost of goods sold and contribution margin for both 2002 and 2012. She made a list of the ingredients in her loaf and their costs as of 2002. Honey, wheat, salt, yeast, and water were the bread's ingredients. It seemed simple but it wasn't. One batch of bread that made 48 loaves and required 56 pounds of wheat, 12 pounds of honey, 0.4 pounds of salt and three pounds of yeast. In 2002, honey was $1.32 a pound, salt $4.15 a pound, yeast $1.64 a pound, and wheat was $0.17 a pound. It cost $8.50 an hour for labor. Were there other costs she needed to include: packaging and overhead? Prices had risen significantly for everything except yeast in the ten years between 2002 and 2012. Honey was now $4.02 a pound, salt $7.47 a pound, yeast was $0.98 per pound and wheat was $0.30 per pound. Wages hadn't changed at $8.50 per hour. A batch of bread needed a half hour of labor to mix the batter. While employees needed to be around when the bread rose and baked, employees usually did other work during this time and she decided to allocate only 0.5 hours labor per batch of bread. The variable costs could and did change over time, but their variability made it difficult to forecast their values in the future. Karen wondered how or even if she should somehow incorporate this uncertainty into her calculations and decision. She had seen how commodity prices had changed significantly in just the few weeks since she bought the bakery. Karen did not include fixed costs in her calculation. She had bought the business, not the building so there was monthly rent, not a mortgage. Water wasn't included in the cost structure, but without it there wouldn't be bread. Should part of the water bill be allocated to the loaves? And what about insurance, taxes, and other fixed costs? Were they part of the cost? Business theory stated that fixed costs should not be included in pricing decisions (Stiving, 2010), yet many business allocated fixed costs to product lines in their pricing decisions (Shim & Sudit, 1995). Since Karen had not collected fixed cost information she decided to ignore them and focus on variable costs. And then there was pricing. Covering costs was critical but what would customers be willing to pay? If Karen raised prices how would customers react? Should she increase all at once or a little? Should the price cover costs now or anticipated costs for the next couple of years so the change could be "one and done?" The Rise Pricing seemed like more of an art than a science. What did competitors charge? The loaves on grocery store shelves looked industrial, tasted bland, and shipped by truck from a factory. A grocery store field trip yielded a wide variety of prices and products. Over the last few years, grocery stores started selling artisan and other kinds of loaves that looked like what she was selling in her store. Focusing on honey wheat, Karen found loaves at a couple of stores that looked like her loaves and sold for $5.25 or more a loaf. Those loaves seldom went on sale, but sometimes were put in the day-old section of stores. The difference was the ingredient list. What exactly were some of the ingredients on the label? In the grocery store, the typical bread loaf was something she thought of as factory-made. Those loaves often went on sale. The price was $4.10 for higher quality brands, but they often sold at a discount of $2 a loaf. The texture and taste was inferior to her product, but she knew some customers wouldn't notice the difference and cared more about price. She decided those were not the customers she wanted to target. Convenience and price were their focus. There was another bakery in town, but it made and sold rolls and didn't sell bread. Since it didn't make products similar to her loaves she didn't think she had to worry about competition from it. Karen thought her product was a premium loaf, made by her bakers and sold while it was still oven fresh. Her bread was baked fresh and without preservatives, a quality product. Many customers realized the premium qualities of her bread and often commented on the texture and taste. Her customer base seemed less concerned about price and more concerned about quality. They could see the loaves in the back of the store, talk to the bakers and better yet, smell the scent of freshly baked. In short, customers were willing to pay a premium for a higher quality product. Yet, Karen wondered if they would find alternatives if she raised her price. In a Canadian study the price elasticity for bread was -0.43 (Pomboza & Mbaga, 2007) suggesting that a one percent increase in price would lower demand by 0.43%. While this resulted in fewer loaves sold, it also resulted in higher profits for the store if Karen raised her price. Karen did not have information on whether customers would substitute inferior grocery bread for her higher quality bread if she raised her price. It was simply an unknown. Karen's research convinced her that she had a unique product. Competing on price seemed like a bad idea. But if she baked it and priced it for profits, would they buy? The Loaf Now that Karen had calculated the numbers and had researched her competition it was time to decide on a price. There were many ways to start. She could estimate the mark up from the cost of goods sold and the margin percent based on 2002. Then she could use those percentages along with the 2012 commodity prices to estimate a 2012 price. Or Karen could estimate costs and multiply that number by some multiple like 2X or 3X to determine the price. Some bakeries priced goods this way. Karen wondered, "Would focusing on profit margins be a better strategy?" Even then she struggled with what to do about the volatility of commodity prices. Should a model incorporate that uncertainty and, if so, how? Were there other pricing strategies? Should she use a markup from the competition? What if her numbers showed a big price increase was needed? How would her customers react? Did she need to change the price in stages and test the reaction or would it be better to do it all at once? What about the future? If she was increasing prices anyway, should there be a margin for the possible changes in commodity prices? This was much harder than the homework problems she solved in college while earning her business degree and the stakes were higher. This decision could make or break her business and its future. This was bread making 101. Karen knew the price change was just the beginning. Standing in the store and monitoring sales was important not only to keep the personal connection her customers valued, but also to hear and review in real time how sales changed as the price increased.
In: Economics