If you were asked to graph or quantify the risk of owning IBM stock, how would you do it? What is your preferred measure of risk? How would you demonstrate that your metric captures risk adequately? Identify several S&P listed companies that you consider to be risky investments? How does rising global turmoil influence risk? The price of gold? The price of U.S. Treasury bonds? U.S. equities? Which is a riskier asset, a 3-month U.S. Treasury bond or a 10-year U.S. Treasury bond? Explain. What factors could push the yield on 6-month U.S. Treasury higher than the 10-year U.S. Treasury bond.

Uber has had phenomenal growth, going from four people in 2009 to the two kinds of workers it deals with today: (1) 12,000 full-time nondriver employees, such as those working in its San Francisco headquarters, and (2) about 2 million active drivers globally, the independent contractors it calls “partners.”

Uber’s Employees

Former CEO Travis Kalanick viewed human resources (HR) as having one function—recruiting. Other HR functions were not a priority for Uber. For example, the company had fewer than 10 HR representatives in 2016 who were responsible for training managers and handling issues such as sexual harassment for the 6,000 employees it had at the time. “When HR becomes solely a talent race, boards and CEOs can miss the less obvious but equally vital value of managing both new hires and leaders who are facing increasing demands,” says John Boudreau in a Harvard Business Review article.

Kalanick’s lack of focus on HR created a toxic atmosphere at the organization. Much of this became evident with Susan Fowler, a former Uber engineer. Fowler claimed in a February 2017 blog that she was sexually harassed by her supervisor and that HR ignored her claims. Other employees have since reported that a premium was placed on workers who delivered strong performance and aggressive growth, and that their inappropriate workplace behavior was overlooked, according to the New York Times.

Uber attempted to improve this situation by focusing on the accuracy of its performance evaluations. In the past, performance reviews were subjective with managers simply meeting behind closed doors and rating their employees. This obviously increased the potential for managerial bias. The process also was deficient in that employees did not have individual goals to be evaluated against, making it hard to hold employees and managers accountable for objective results.

Uber implemented two significant changes in 2017 to overcome problems with its appraisal system. First, the company established measurable goals for all employees, and they were transparent for all to see. Second, Uber implemented something similar to a 360-degree performance appraisal system as evaluations needed to take into account more than a manager’s direct observation of subordinates. The system consisted of committees reviewing employees’ self-evaluations, peer evaluations, and manager evaluations to make sure bonuses were given out fairly, according to Uber Chief People Officer Liane Hornsey.

While these changes may have improved the human resource process at Uber, employee issues still persist. For example, HR Chief Hornsey resigned in July 2018 amid continuing employee dissatisfaction. “Disgruntled employees still don’t trust Uber’s systems, and they are turning to the media to air their grievances. This suggests that Khosrowshahi’s attempt to build trust among employees, an assurance that the company can address challenges internally, has not taken hold,” says Wired Magazine.

Uber’s Drivers

Uber isn’t only failing its employees; it’s also failing its drivers. The company seems to offer very little in human resource development for its contractors. Drivers are given the option of watching a 13-minute training video covering such topics as how to provide good service and get five-star ratings from customers. “The only safety thing they tell us,” says one driver, “is to have a hands-free phone holder and to keep your eyes on the road.” Drivers who want additional training will have to pay for it on their own. Uber has contracted with 7x7 Experience to offer quality improvement courses at a rate of $49 per course. They can also take a course on “Tip Maximization” for another $29.

Uber drivers may not be happy about having to pay for quality improvement courses, especially because a recent study found they aren’t making that much. The Economic Policy Institute released a 2018 analysis showing that Uber drivers take home around $9.21 an hour. This means drivers are making less than the minimum wage of some of Uber’s biggest markets, such as Chicago, Los Angeles, and New York. The $9.21 figure actually “puts Uber drivers at the bottom 10 percent of wage earners” according to the Chicago Tribune.

Drivers, often undertrained, are also victims of an automated performance appraisal system in which passengers rate drivers on a scale of from 1 to 5 stars. Each driver then receives a weekly average rating for all passengers, and this average is used to make personnel decisions. In Atlanta, for example, a driver receiving less than 4.6 stars may be kicked out of the program. Uber did update its ratings system in July 2017 by introducing a “ratings protection” initiative. This system was designed to protect drivers from complaints that are unrelated to their actual performance. For example, when a rider selects a rating below 5 stars, a screen will pop up asking “what could be improved?” Options include “route by Uber” and “co-rider,” and only one option goes back to the driver.

Uber drivers may not have much power to fight back against the company’s HR policies. The company is resisting unionization because it wants its app-based drivers to be “business partners”—that is, contractors not subject to employee-protection laws. The issue of unionization is being fought in the courts. In 2015, Seattle passed an ordinance allowing Uber (and Lyft) drivers to unionize, which the U.S. Chamber of Commerce and Uber have sought to overturn. In May 2018, the Ninth Circuit Court of Appeals reversed a lower court’s 2017 decision to uphold the law, continuing the legal saga by sending the case back to the lower court for further review.

Uber has worked to improve and safeguard its driver performance appraisal rating system, yet it still lacks some of the basic components of traditional employee performance management systems. Based on the case, which of the following is not part of Uber’s performance appraisal system for drivers?

A: Rewards

B: Feedback

C: Expectations

D: Monitoring

E: Punishment

Why is the U.S. investing abroad when the world is investing in the U.S.?

A U.S. investor and an Italian investor are considering investments in the U.S. and the Eurozone. Both investors are quoted the following rates from their banks:

Spot exchange rate (e_$/€):                                $1.10/€

One-year forward rate (f_$/€):                           $1.06/€

One-year interest rate on dollars (i_$):             3.0%

One-year interest rate on euros (i_€):               5.0%

1. Does Covered Interest Rate Parity hold given the rates quoted above?
2. Should the U.S. investor make a one-year covered investment in euros or simply invest in dollars?
3. Should the Italian investor make a one-year covered investment in dollars or simply invest in euros?
4. If Uncovered Interest Rate Parity holds, what is the spot rate expected in one year?

Suppose you are the Chief Marketing Officer for a retailer that has data on the home addresses of its

1,000,000 most active customers. You hope to determine whether sending out “20% off your entire

purchase” coupons by mail will increase revenues.

You conjecture that customers who have access to this coupon will spend more in the store over the

next year. However, skeptics in your company argue that the coupons will just allow customers to

spend less on items they would have purchased anyway. This is a debate that an experiment can

resolve.

In thinking about how large of an experiment you need to have enough statistical power, you realize

that many of the customers you send the coupons to in the mail will not open the mail and so will not

realize they received the coupon.

1. The CEO argues that to estimate the effects of the coupons on revenue, you should compare

the difference in revenues from a) people you sent the coupons and who used them and b)

people you sent the coupons but who did not use them. Write a response to your CEO:

describe the flaw with this plan in language the CEO will understand, and advocate for your

proposed experiment.

2. To avoid the cost of sending out coupons you do not need to, you ask the data science team

to plan an experiment just large enough (with just enough statistical power) to reliably detect

a treatment effect if the true effect on those who open the mail and realize they have the

coupon is a $2 increase in revenue over the next year. The data science team tells you that

an experiment with 100,000 people in the treatment group (leaving the remaining 900,000 in

the control group) will be well-powered to detect an overall difference between the entire

treatment and control groups of $2 in revenue over the next year. To send out the minimum

number of coupons required while still having enough statistical power to detect a $2 effect of

opening the mail, can you send out fewer, the same number of, or more coupons than

100,000?

Green Landscaping Inc. is preparing its budget for the first quarter of 2020. The next step in the budgeting process is to prepare a cash receipts schedule and a cash payments schedule. To that end the following information has been collected. Clients usually pay 60% of their fee in the month that service is performed, 30% the month after, and 10% the second month after receiving service. Actual service revenue for 2019 and expected service revenues for 2020 are November 2019, $94,110; December 2019, $84,830; January 2020, $102,390; February 2020, $123,530; and March 2020, $131,560. Purchases of landscaping supplies (direct materials) are paid 60% in the month of purchase and 40% the following month. Actual purchases for 2019 and expected purchases for 2020 are December 2019, $17,540; January 2020, $16,370; February 2020, $18,950; and March 2020, $19,050. (a) Prepare the following schedules for each month in the first quarter of 2020 and for the quarter in total: 1) Expected collections from clients. (2) Expected payments for landscaping supplies. (b) Determine the following balances at March 31, 2020: (1) Accounts receivable (2) Accounts payable

Green Landscaping Inc. is preparing its budget for the first quarter of 2020. The next step in the budgeting process is to prepare a cash receipts schedule and a cash payments schedule. To that end the following information has been collected. Clients usually pay 60% of their fee in the month that service is performed, 30% the month after, and 10% the second month after receiving service. Actual service revenue for 2019 and expected service revenues for 2020 are November 2019, $94,110; December 2019, $84,830; January 2020, $102,390; February 2020, $123,530; and March 2020, $131,560. Purchases of landscaping supplies (direct materials) are paid 60% in the month of purchase and 40% the following month. Actual purchases for 2019 and expected purchases for 2020 are December 2019, $17,540; January 2020, $16,370; February 2020, $18,950; and March 2020, $19,050.

The intangible assets section of Pronghorn Corporation’s balance sheet at December 31, 2022, is presented here.

The patent was acquired in January 2022 and has a useful life of 10 years. The copyright was acquired in January 2016 and also has a useful life of 10 years. The following cash transactions may have affected intangible assets during 2023.

(b)

Prepare journal entries to record the 2023 amortization expense for intangible assets. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Problem 23-04

Sarasota Company had the following information available at the end of 2020.

Prepare a statement of cash flows for Sarasota Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are debt securities, classified as available-for-sale. (Show amounts in the investing and financing sections that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)