Question 2:
Yankee Hotel Foxtrot initiated operations on July 1, 2014. To manage the company
officers and managers have requested monthly financial statements starting July 31, 2014.
The adjusted trial balance amounts at July 31 are shown below.
Debits Credits
Cash $ 7,680 Accumulated Depreciation-
Equipment $ 840
Accounts Receivable 810 Notes Payable 6,000
Prepaid Rent 1,965 Accounts Payable 2,140
Supplies 1,160 Salaries and Wages Payable 360
Equipment 11,400 Interest Payable 40
Owner's Drawings 800 Unearned Service Revenue 580
Salaries and Wages Expense 7,145 Owner's Capital 10,640
Rent Expense 2,740 Service Revenue 14,390
Depreciation Expense 665
Supplies Expense 580
Interest Expense 45
Total debits $ 34990 Total Credits $34990
Instructions
(A) Determine the net income for the month of July
(B) Determine the amount for Owner’s, Capital at July 31, 2014
(C) Determine the Balance Sheet at July 31, 2014 fo

Question 2: Yankee Hotel Foxtrot initiated operations on July 1, 2014. To manage the company officers and managers have requested monthly financial statements starting July 31, 2014. The adjusted trial balance amounts at July 31 are shown below.

Instructions

(A) Determine the net income for the month of July

(B) Determine the amount for Owner’s, Capital at July 31, 2014

(C) Determine the Balance Sheet at July 31, 2014 for

After operating a successful US hotel corporation (H Corp) for several years, Donald decides to set up a wholly owned subsidiary in the export business (X Corp). His initial investment in this corporation is $1,000. Through a stroke of luck, the US tax laws change and X Corp becomes worth $100,000 overnight, even though its balance still only reflects $1,000 cash and $1,000 equity.

Donald is considering selling the operation but is concerned about the tax ramifications.

a. What would H Corps gain be if it sold the stock of X Corp for $100,000?

b. Instead, Donald has offered to sell X Corp to Bill Corp in a tax free exchange of 100% of       X Corp for $100,000 of Bill Corp stock. Assuming Bill Corp accepts this offer, what is Bill Corps basis in X Corp stock? What is H Corps gain, if it immediately sells its stock in Bill Corp for $100,000?

c. What alternative structure might Bill Corp offer which might provide additional tax benefits to Bill Corp? Explain and show calculations

d. What might Bill Corp do to entice H Corp to accept the revised deal?

1. Please analyze how to potentially avoid “Red Ocean Traps” using a hotel, retail, restaurant, healthcare, or entrepreneurship example.

Using a fast food example, how would they avoid each of the five red ocean traps as in the article.

TRAP ONE

Seeing Market-Creating Strategies as Customer-Oriented Approaches Generating new demand is at the heart of market- creating strategies. It hinges on converting non- customers into customers, as Salesforce.com did with its on-demand CRM software, which opened up a new market space by winning over small and midsize firms that had previously rejected CRM enterprise software.

The trouble is that managers, especially those in marketing, have been quite reasonably brought up to believe that the customer is king. It’s all too easy for them to assume, therefore, that market-creating strategies are customer led, which causes them to re exclusively stick to their focus on existing customers and how to make them happier.

This approach, however, is unlikely to create new markets. To do that, an organization needs to turn its focus to noncustomers and why they refuse to patronize an industry’s offering. Noncustomers, not customers, hold the greatest insight into the points of pain and intimidation that limit the boundary of an industry. A focus on existing customers, by contrast, tends to drive organizations to come up with better solutions for them than what competitors currently o er—but keeps companies moored in red oceans.

Consider Sony’s launch of the Portable Reader System (PRS) in 2006. The company’s aim was to unlock a new market space in books by opening the e-reader market to a wide customer base. To gure out how to realize that goal, it looked to the experi- ence of existing e-reader customers, who were dissat- is ed with the size and poor display quality of current products. Sony’s response was a thin, lightweight de- vice with an easy-to-read screen. Despite the media’s praise and happier customers, the PRS lost out to Amazon’s Kindle because it failed to attract the mass of noncustomers whose main reason for rejecting e-readers was the shortage of worthwhile books, not the size and the display of the devices. Without a rich choice of titles and an easy way to download them, the noncustomers stuck to print books.

Amazon understood this when it launched the Kindle in 2007, offering more than four times the number of e-titles available from the PRS and mak- ing them easily downloadable over Wi-Fi. Within six hours of their release, Kindles sold out, as print book customers rapidly became e-reader custom- ers as well. Though Sony has since exited e-readers, the Kindle grew the industry from around a mere 2% of total book buyers in 2008 to 28% in 2014. It now o ers more than 2.5 million e-titles.

TRAP TWO

Treating Market-Creating Strategies
as Niche Strategies
The eld of marketing has placed great emphasis on using ever ner market segmentation to identify and capture niche markets. Though niche strategies can often be very e ective, uncovering a niche in an ex- isting space is not the same thing as identifying a new market space.

Consider Song, an airline launched in 2003 by Delta. Delta’s aim was to create a new market space in low-cost carriers by targeting a distinct segment of i- ers. It decided to focus on stylish professional women travelers, a segment it gured had needs and prefer- ences di erent from those of the businessmen and other passengers most airlines targeted. No airline had ever been built around this group. After many focus group discussions with upwardly mobile and professional women, Delta came up with a plan to cater to them with organic food, custom cocktails, a variety of entertainment choices, free in- ight work- outs with complementary exercise bands, and crew members dressed in Kate Spade. The strategy was intended to ll a gap in the market. It may well have done that successfully, but the segment proved too small to be sustainable despite competitive pricing. Song ew its last ight in April 2006, just 36 months after its launch.

Successful market-creating strategies don’t fo- cus on a finer segmentation. More often, they “deseg- ment” markets by identifying key commonalities across buyer groups that could help generate broader demand. Pret A Manger, a British food chain, looked across three di erent prepared-lunch buyer groups: restaurant-going professionals, fast food customers, and the brown bag set. Although there were plenty of di erences across these groups, there were three key commonalities: All of them wanted a lunch that was fresh and healthful, wanted it fast, and wanted it at a reasonable price. That insight helped Pret A Manger see how it could unlock and aggregate untapped de- mand across those groups to create a commercially compelling new market. Its concept was to offer restaurant-quality sandwiches made fresh every day from high-end ingredients, preparing them at a speed even greater than that of fast food, and deliv- ering that experience in a sleek setting at reasonable prices. Today, nearly 30 years on, Pret A Manger con- tinues to enjoy robust pro table growth in the new market space it established.

TRAP THREE

Confusing Technology Innovation
with Market-Creating Strategies
R&D and technology innovation are widely recog- nized as key drivers of market development and in- dustry growth. It’s understandable, therefore, that managers might assume that they are also key drivers in the discovery of new markets. But the reality is that market creation is not inevitably about technological innovation. Yellow Tail opened a new market (in its case, for a fun and simple wine for everyone) with- out any bleeding-edge technologies. So did the chain Starbucks and the performing arts company Cirque du Soleil. Even when technology is heavily in- volved, as it was with market creators Salesforce.com, Intuit’s Quicken, or Uber, it is not the reason that new o erings are successful. Such products and services succeed because they are so simple to use, fun, and productive that people fall in love with them. The technology that enables them essentially disappears from buyers’ minds.

Consider the Segway Personal Transporter, which was launched in 2001. Was it a technology innova- tion? Sure. It was the world’s rst self-balancing hu- man transporter, and it worked well. Lean forward and you go forward; lean back and you go back. This engineering marvel was one of the most-talked- about technology innovations of its time. But most people were unwilling to pay up to $5,000 for a prod- uct that posed di culties in use and convenience: Where could you park it? How would you take it with you in a car? Where could you use it—sidewalks or roads? Could you take it on a bus or a train? Although the Segway was expected to reach breakeven just six months after its launch, sales fell way below initial predictions, and the company was sold in 2009. Not everyone was surprised. At the time of the product’s release, a prescient Time magazine article about Dean Kamen, Segway’s inventor, struck a cautionary note: “One of the hardest truths for any technologist to hear is that success or failure in business is rarely determined by the quality of the technology.”

Value innovation, not technology innovation, is what launches commercially compelling new mar- kets. Successful new products or services open mar- ket spaces by o ering a leap in productivity, simplic- ity, ease of use, convenience, fun, or environmental friendliness. But when companies mistakenly as- sume that market creation hinges on breakthrough technologies, their organizations tend to push for products or services that are too “out there,” too complicated, or, like the Segway, lacking a necessary ecosystem. In fact, many technology innovations fail to create new markets even if they win the company accolades and their developers scienti c prizes.

TRAP FOUR

Equating Creative Destruction
with Market Creation
Joseph Schumpeter’s theory of creative destruction lies at the heart of innovation economics. Creative destruction occurs when an invention disrupts a market by displacing an earlier technology or existing product or service. Digital photography, for example, wiped out the photographic lm industry, becoming the new norm. In Schumpeter’s framework, the old is incessantly destroyed and replaced by the new.

But does market creation always involve destruc- tion? The answer is no. It also involves nondestruc- tive creation, wherein new demand is created with- out displacing existing products or services. Take Viagra, which established a new market in lifestyle drugs. Did Viagra make any earlier technology or ex- isting product or service obsolete? No. It unlocked new demand by o ering for the rst time a real solu- tion to a major problem experienced by many men in their personal relationships. Grameen Bank’s cre- ation of the micro nance industry is another exam- ple. Many market-creating moves are nondestructive, because they o er solutions where none previously existed. We’ve also seen this happen with the social networking and crowdfunding industries. And even when a certain amount of destruction is involved in market creation, nondestructive creation is often a larger element than you might think. Nintendo’s Wii game player, for example, complemented more than replaced existing game systems, because it attracted younger children and older adults who hadn’t previously played video games.

Con ating market creation with creative destruc- tion not only limits an organization’s set of opportu- nities but also sets o resistance to market-creating strategies. People in established companies typically don’t like the notion of creative destruction or disrup- tion because it may threaten their current status and jobs. As a result, managers often undermine their company’s market-creating e orts by starving them of resources, allocating undue overhead costs to the initiatives, or not cooperating with the people work- ing on them. It’s critical for market creators to head this danger o early by clarifying that their project is at least as much about nondestructive creation as it is about disruption.

TRAP FIVE

Equating Market-Creating
Strategies with Differentiation
In a competitive industry companies tend to choose their position on what economists call the “produc- tivity frontier,” the range of value-cost trade-offs that are available given the structure and norms of the industry. Di erentiation is the strategic position on this frontier in which a company stands out from competitors by providing premium value; the trade- o is usually higher costs to the company and higher prices for customers. We’ve found that many man- agers assume that market creation is the same thing.

In reality, a market-creating move breaks the value-cost trade-off. It is about pursuing differen- tiation and low cost simultaneously. Are Yellow Tail and Salesforce.com di erentiated from other play- ers? You bet. But are Yellow Tail and Salesforce.com also low cost? Yes again. A market-creating move is a “both-and,” not an “either-or,” strategy. It’s impor- tant to realize this difference, because when com- panies mistakenly assume that market creation is synonymous with di erentiation, they often focus on what to improve or create to stand apart and pay scant heed to what they can eliminate or reduce to simultaneously achieve low cost. As a result, they may inadvertently become premium competitors in an existing industry space rather than discover a new market space of their own. Take BMW, which set out to establish a new mar- ket in urban transport with its launch of the C1 in

2000. Tra c problems in European cities are severe, and people waste many hours commuting by car there, so BMW wanted to develop a vehicle people could use to beat rush-hour congestion. The C1 was a two-wheeled scooter targeting the premium end of the market. Unlike other scooters, it had a roof and a full windshield with wipers. BMW also invested heavily in safety. The C1 held drivers in place with a four-point seat-belt system and protected them with an aluminum roll cage, two shoulder-height roll bars, and a crumple zone around the front wheel.

With all these extra features, the C1 was expen- sive to build, and its price ranged from $7,000 to $10,000—far more than the $3,000 to $5,000 that typical scooters fetched. Although the C1 succeeded in di erentiating itself within the scooter industry, it did not create the new market space in transportation BMW had hoped for. In the summer of 2003, BMW announced it was stopping production because the C1 hadn’t met sales expectations.

TRAP SIX

Equating Market-Creating Strategies with Low-Cost Strategies
This trap, in which managers assume that they can create a new market solely by driving down costs, is the obvious ip side of trap ve. When organizations see market-creating strategies as synonymous with low-cost strategies alone, they focus on what to elim- inate and reduce in current o erings and largely ig- nore what they should improve or create to increase the o erings’ value.

Ouya is a video-game console maker that fell into this trap. When the company began selling its prod- ucts, in June 2013, big players like Sony, Microsoft, and Nintendo were o ering consoles connected to TV screens and controllers that provided a high- quality gaming experience, for prices ranging from $199 to $419. With no low-cost console available, many people would play video games either on handheld devices or on TV screens connected to mobile devices via inexpensive cables.

An attempt to create a market space between high-end consoles and mobile handhelds, the $99 Ouya was introduced as a low-cost open-source

“microconsole” offering reasonable quality on TV screens and most games free to try. Although people admired the inexpensive, simple device, Ouya didn’t have the rich catalog of quality games, 3-D intensity, great graphics, and processing speed that traditional

gamers prized but the company had to some extent sacri ced to drop cost and price. At the same time, Ouya lacked the distinctive advantage of mobile handheld devices—namely, their play-on-the-go functionality. In the absence of those features, poten- tial gamers had no compelling reason to buy Ouyas. The company is now shopping itself to acquirers—on the basis of its sta ’s talent more than the strength of its console business—but as yet hasn’t found one.

Our point, again, is that a market-creating strat- egy takes a “both-and” approach: It pursues both di erentiation and low cost. In this framework, new market space is created not by pricing against the competition within an industry but by pricing against substitutes and alternatives that noncustomers are currently using. Accordingly, a new market does not have to be created at the low end of an industry. Instead it can be created at the high end, as Cirque du Soleil did in circus entertainment, Starbucks did in co ee, and Dyson did in vacuum cleaners.

Even when companies create new markets at the low end, the o erings also are clearly di erentiated in the eyes of buyers. Consider Southwest Airlines and Swatch. Southwest stands out for its friendly, fast, ground-transportation-in-the-air feel, while stylish, fun designs make Swatches a fashion state- ment. Both companies’ offerings are perceived as both di erentiated and low cost.

Laura, a new graduate from Cornell Unversity’s School of Hotel Administration, could not believe her good luck. She was recently offered a new entrylevel position as an operations analyst at ARAMARK, one of the most admired U.S. companies, according to Fortune magazine (ARAMARK is a leader in professional services, providing award-winning food services, facilities management, and uniform and career apparel to health care institutions, universities and school districts, stadiums and arenas, and businesses around the world). The reason for Laura’s excitement was also because of the unique opportunity she was getting in her first assignment: she was going to Beijing during the 2008 Olympics to work for ARAMARK food services. Over the years, ARAMARK has provided food services to many large-scale events, including the last 13 Olympic Games. For example, during the 2004 Athens Olympics, ARAMARK worked with its partner, the Daskalantonakis Group (the leading Greek hospitality and tourism group), to provide meals for the largest Olympic Village in history. The Olympic Village in Athens hosted Summer Olympic and Paralympic Games participants, coaches, officials and Games personnel. ARAMARK and the Daskalantonakis Group served more than two million meals to participants, coaches, and officials throughout the 60-day duration of both the Olympic and Paralympic Games. Some of the other large-scale food service events managed by ARAMARK included serving over 340,000 motor fans who attended one of the biggest events in Spain last year: the Spanish Formula 1 Grand Prix in Barcelona. More than 1,100 ARAMARK employees served attendees more than 9,000 fruit dishes, 120,000 sandwiches, 40,000 hot dogs, and 40,000 cups of coffee during the three-day event. Some specialty gourmet dishes were also served, such as barbequed lamb steak, pumpkin and orange soup, and sole rolls with shrimp cream. While preparing for her job interview, Laura had become aware of the large scale of ARAMARK’s food service engagements. However, nothing had prepared Laura for the scale of the Beijing 2008 Olympics food service operations; Laura and all the other new employees had received a pre-event memo from their new boss, which stated that the ARAMARK team would be responsible for serving 3.5 million meals during the event (or 10,000 people per hour) that would not only pack a punch for peak performance but had to have the smells and tastes of home. The food service operations would have a staff of nearly 7,000—including some 230 chefs from 10 countries— to feed almost 65,000 athletes, coaches, officials, and members of the media throughout the Olympics. The memo further stated that ARAMARK’s biggest challenge would be to ensure that the food arrived at the right time, at the right temperature, and in the right quantities. In addition, dining during the Olympics would also be a social experience. Therefore, ARAMARK had to ensure that the athletes and visiting dignitaries got the highest quality service for a great experience. The memo also included a table (see Table 12.4), which listed some of the key inventories that needed to be managed to ensure that the food service operation was successful. After going through the memo and the attached table, Laura wondered if she should still feel lucky or she should start panicking. Her job was to support the assistant director in effectively managing inventory for the food service operations. She wondered if she could apply the concepts she learned about lean enterprise in her final semester operations management class to this first “real-world” job. Table 12.4 Inventory for 2008 Beijing Olympics Food Service Operations To serve a “world menu” of more than 800 recipes throughout the Games requires: • 93,000 pounds of seafood • 130 tons of meat • 38,000 pounds of pasta (dry) • 134,000 pounds of rice (about 20 million half-cup servings when cooked) • 743,000 (or 232 tons) potatoes • 800,000 (or 44 tons) eggs • 1 million apples • 936,000 bananas • 312,000 oranges • 684,000 carrots • Nearly 24 tons of onions • 50,000 pounds of mushrooms • 57,000 pounds of cheese • 190,000 loaves of bread • 5,500 pounds of butter • 16,000 pounds of tofu • 20,000 heads of lettuce All those ingredients will create a rotating menu of: • 320 hot main entrée dishes • 160 vegetable and potato dishes • 128 rice and pasta dishes • 400 different dessert, pastry, and bakery items

QUESTIONS

1. What are the unique aspects of inventory management in large-scale food services such as ARAMARK’s Olympic Games operations?

2. What lean production concepts can Laura apply in the above context? What challenges will she face?

3. What are the limits to applying lean principles in large food service operations such as ARAMARK’s Olympic Games operations?

Suppose we wish to build a multiple regression model to predict the cost of rent (dollars) in a city based on population (thousands of people), and income (thousands of dollars). Use the alpha level of 0.05.

5. What are the values of the estimated slope for the variable “Population”? Interpret the value in terms of actual names of IVs and the DV.

6. Does Income significantly influence the Rent at the alpha level of 0.01? Make sure to show which values you use to make the decision.

7. Does Population significantly influence the Rent at the alpha level of 0.01? Make sure to show which values you use to make the decision.

You have always dreamed “seeing the world”, and are making plans to do so. You estimate that it will cost about J$1,800,000 for air fares, hotel accommodation, and sight-seeing, and could be done in a six week period. You plan to take this trip in seven year’s time, starting during your pre-retirement leave in January 2018. You intend to start building this travel fund in January 2011, and will continue until December 2017.

1. Your plan is to invest your entire Christmas bonus every year starting January 1, 2011. You estimate that your Christmas bonus will be $80,000 this year, and will increase by 5% per year after that. Every January until 2017 you plan to open a new certificate of deposit with the entire bonus. You don’t intend to withdraw any of these funds until the end of December 2017. What will be the total amount in these accounts in December 2017, if the average expected return on each account is 12% per year?                                                                                                                                            

You also intend to have a monthly savings plan, starting at the beginning of January 2011. Into this account, you plan to put $5,000 at the start of every month, with your final deposit being at the beginning of December 2017. If the average expected interest rate is 12% per year, compounded monthly, how much do you expect to have in the account at the end of December 2017?                                                                                               

A corporation operates snow sports facilities in Canada. The corporation has an opportunity to lease a location in the mountains for 10 years for $60,000 per year to open a new snow sports location. They will also have access to trails in the provincial park at an additional cost of $24,000 per year for trail maintenance. To secure the lease they paid a non-refundable deposit of $10,000 last year. The corporation will be required to purchase snowshoes, cross-country skis and other equipment for an estimated amount of $275,000. The equipment is depreciated on a straight-line basis over 10 years. They also estimate that they will need to spend $25,000 to renovate the interior of the building at the start of the lease. In addition, management has provided the following information regarding the expected future annual earnings and expenses of the new project:

The appropriate discount rate for the project is 10%. Ignore taxes.

Calculate the annual incremental operating cash flow of the project using the year 1-10 cash flows only.

Incremental annual revenue = ?

Incremental annual costs = ?

Incremental annual operating cash flow = ?

NPV = ?

Management of AG Travel and Tour has identified two groups of individuals that
would be interested in the vacation package consisting of room and board and/or
entertainment. The maximum amount that group 1 is willing to pay for room and
board is GHC 2500 and for entertainment is GHC 500. For group 2, the maximum
amount they are willing to pay for room and board is GHC 1800 and for
entertainment is GHC 750. Although AG Travel and Tour is not able to identify
members of either group, it does know that each group values the components of
the package differently. Assuming there are an equal number of members in each
group and that the total membership in each group is a single individual. If the
marginal cost of providing the service (room and board and/or entertainment) to
each group is GHC 1000.
i. How much will the hotel charge members of each group for the vacation
package if it could identify the members in each group?
ii. How much will the profit for AG Travel and Tour be?
iii. Since AG Travel and Tour is not able to identify members of each group,
what price should it charge for each product?
iv. What will be the profit for AG Travel and Tour in the case of (iii) above?

v. If AG Travel and Tour wants to charge a package price, what is the highest
price it can charge?
vi. What profit will AG Travel and Tour make if it charges the package price
found in (v) above?