Anwer owns a rental home and is involved in maintaining it and approving renters. During the year he has a net loss of $12,100 from renting the home. His other sources of income during the year were a salary of $90,000 and $40,200 of long-term capital gains. How much of Anwer’s $12,100 rental loss can he deduct currently if he has no sources of passive income?

Anwer owns a rental home and is involved in maintaining it and approving renters. During the year he has a net loss of $12,100 from renting the home. His other sources of income during the year were a salary of $90,000 and $40,200 of long-term capital gains.

How much of Anwer’s $12,100 rental loss can he deduct currently if he has no sources of passive income?

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Cassandra Pty Ltd, an Australian resident company for tax purposes, purchases land with a derelict building on it in Melbourne on 1 January 2014 for $500,000. Between 1 January and 1 February 2014 Cassandra Pty Ltd spends $100,000 on demolishing the derelict building. On 2nd February 2014 Cassandra Pty Ltd enters into a contract with Oz Build Pty Ltd (an Australian resident company for tax purposes) to construct a theatre building on the Melbourne land. The total cost of construction was $1,000,000 with Cassandra Pty Ltd paying a deposit of $100,000 on signing the contract and making nine progress payments of $100,000 each month during the period of construction. Cassandra Pty Ltd borrowed $1,200,000 from Big Bank Ltd (an Australian resident bank) on 15th January 2014 on an interest only basis at a rate of 5% to partly fund the purchase of the land and the construction of the theatre building. The balance of the purchase price and costs of construction were paid from Cassandra Pty Ltd’s retained earnings. Cassandra Pty Ltd paid stamp duty of $10,000 on the purchase of the land. Legal fees associated with the purchase of the land were $2,000. Construction of the theatre is completed on 1 October 2014 and, following a month of rehearsals, the first play, ‘The Paris Of The South’, performed by Cassandra Pty Ltd takes place. The play is successful and Cassandra Pty Ltd’s revenues from the play for the year ending 30 June 2015 were $200,000. Following the successful season of ‘The Paris Of The South’, Cassandra Pty Ltd decides to produce Bizet’s opera ‘Carmen’ at the theatre. Because of the scale of the opera Cassandra Pty Ltd spends $150,000 on enlarging the stage at the theatre and $200,000 on construction of an orchestra pit on 1 February 2016. Cassandra Pty Ltd pays for the cost of enlarging the stage from its retained earnings. Following the enlarging of the stage and the construction of the orchestra pit, performances of Cassandra Pty Ltd’s production of ‘Carmen’ commence on 1 March 2016 and run until 30 June 2016. Cassandra Pty Ltd has revenues of $150,000 from this season of ‘Carmen’ at the Melbourne theatre. Oscar Pty Ltd, an Australian resident company for tax purposes, purchases the land and theatre building from Cassandra Pty Ltd on 1 July 2016 for $3,000,000. Cassandra Pty Ltd uses the $1,200,000 of the sale proceeds to repay the loan from Big Bank Ltd. During the entire period of the loan interest had been payable at the rate of 5% per annum on an interest only basis. Cassandra Pty Ltd paid interest at that rate each month through the term of the loan. Shortly after Oscar Pty Ltd purchases the theatre Melbourne suffers a mild earth tremor. At about the same time Oscar (the sole shareholder and director of Oscar Pty Ltd) watches a documentary about earthquake damage in Christchurch New Zealand. As a result Oscar decides to have strengthening works carried out on the theatre building in Melbourne so that it can withstand an earthquake of similar force to the Christchurch earthquakes. Earthquakes are very rare in Melbourne and there has never been a recorded incidence in Melbourne of an earthquake of the same force as any of the Christchurch earthquakes. Oscar is advised by his engineer that the strengthening works will only increase the life of the building if there is an earthquake of equivalent force to the earthquakes that have occurred in Christchurch. The strengthening works commence on 10th July 2016. Oscar Pty Ltd agrees to pay the builder (Earnest Constructions Pty Ltd, an Australian resident company) on an instalment basis throughout the works. The total amount payable will be $500,000 payable by 4 equal instalments over a sixteen month period. The first instalment is paid on signing the construction contract on 1 July 2016. The contract calls for each of the remaining instalments to be paid on the first day of November 2016, the first day of March 2017, the first day of July 2017 and the first day of November 2017. Oscar Pty Ltd opens the theatre as The Wild Theatre. The first play that is performed at the theatre is ‘Boy versus Wild’ written by Oscar. In December 2016 Oscar Pty Ltd employs carpenters, stage and lighting technicians, a finance manager, and a marketing manager. The salary cost for these employees is $15,000 per week. Oscar directs the play himself. Oscar Pty Ltd also spends $50,000 in January 2016 for material to be used in constructing sets for the theatre. After the play has been performed the sets will be demolished and sent to the local Waste Disposal Centre. Oscar Pty Ltd also enters into contracts with several actors to rehearse the play for six weeks and perform in the play for a period of three months. The contract with the actors sets their pay at $500 per rehearsal and $1000 per performance increasing to $1500 per performance if more than 50% of performances in the first month are sold out. After six weeks of rehearsals in February and March 2017 ‘Boy versus Wild’ opens at the Wild Theatre on 1 April 2017. Unfortunately for Oscar Pty Ltd and the actors none of the performances in September are sold out. Patrons in the theatre complain about the disruption to access caused by the earthquake strengthening works that are still proceeding. As a result Oscar Pty Ltd refuses to pay the 1 July 2017 and 1 November 2017 instalments on the building works. Earnest Constructions Pty Ltd commences court proceedings for breach of contract and suspends the building works on 2nd November 2017. REQUIRED: 1. Advise Cassandra Pty Ltd of the capital gains tax consequences of the above transactions for it. 10 Marks 2. Advise Oscar Pty Ltd as to whether, and if so when and to what extent, any of the above expenditures that it incurs will be deductible to in for Australian income tax purposes. 10 Marks 3. Advise Ernest Constructions Pty Ltd as to whether and, if so, when the instalment payments in relation to its contract with Oscar Pty Ltd will be included in its assessable income. 5 Marks Students who believe that further information is required before giving a definitive advice on any of these issues should state clearly what that information is and should state clearly what assumptions they have made in answering the question. No further information about the facts of the question will be provided by lecturers or on Moodle. REFERENCES – students may find the following references useful in answering the assignment but are not required to refer to these authorities and can refer to other authorities if they consider them to be relevant. Although the list might look intimidating, what is required is ascertaining the relevant principle and applying it to the facts. Income Tax Assessment Act1997 s6-5; s8-1; s25-10; Div 40 generally and in particular s40-180; s40-185; s40-195; Div 43 generally and in particular s42-210; s43-230 and s43-235; s103-15; s104-10; s108-55; s110-25; s110-35; s110-45; s116-20 Cases Wangaratta Woollen Mills (1969) 119 CLR 1 (what is plant) Imperial Chemical Industries of Australia and New Zealand Ltd v FCT (1970) 120 CLR 396 (what is plant) Carpentaria Transport Pty Ltd v FCT (1990) 21 ATR 513; 90 ATC 4590 (what is plant) Broken Hill Co Pty Ltd (1969) 120 CLR 240 (treatment of costs of demolition) Arthur Murray (1965) 114 CLR 314 (advance payments) J Rowe & Sons Pty Ltd(1971) 124 CLR 421 (instalment sales) W. Thomas & Co (1965) 115 CLR 58 (initial repairs) Placer Pacific Management Pty Ltd 95 ATC 4459 (post cessation expenditure) Steele 99 ATC 4242 (pre commencement expenditure) Commonwealth Aluminium (1977) 77 ATC 4151 (defeasible obligations) Carden(1938) 63 CLR 108 (and other cases on the cash v accruals issue) Australian Gas Light Co 83 ATC 4800 (contingent right to payment) BHP Billiton Petroleum (Bass Straight) Ltd2002 ATC 5169

Cassandra Pty Ltd, an Australian resident company for tax purposes, purchases land with a derelict building on it in Melbourne on 1 January 2014 for $500,000. Between 1 January and 1 February 2014 Cassandra Pty Ltd spends $100,000 on demolishing the derelict building. On 2nd February 2014 Cassandra Pty Ltd enters into a contract with Oz Build Pty Ltd (an Australian resident company for tax purposes) to construct a theatre building on the Melbourne land. The total cost of construction was $1,000,000 with Cassandra Pty Ltd paying a deposit of $100,000 on signing the contract and making nine progress payments of $100,000 each month during the period of construction.

Cassandra Pty Ltd borrowed $1,200,000 from Big Bank Ltd (an Australian resident bank) on 15th January 2014 on an interest only basis at a rate of 5% to partly fund the purchase of the land and the construction of the theatre building. The balance of the purchase price and costs of construction were paid from Cassandra Pty Ltd’s retained earnings. Cassandra Pty Ltd paid stamp duty of $10,000 on the purchase of the land. Legal fees associated with the purchase of the land were $2,000.

Construction of the theatre is completed on 1 October 2014 and, following a month of rehearsals, the first play, ‘The Paris Of The South’, performed by Cassandra Pty Ltd takes place. The play is successful and Cassandra Pty Ltd’s revenues from the play for the year ending 30 June 2015 were $200,000.

Following the successful season of ‘The Paris Of The South’, Cassandra Pty Ltd decides to produce Bizet’s opera ‘Carmen’ at the theatre. Because of the scale of the opera Cassandra Pty Ltd spends $150,000 on enlarging the stage at the theatre and $200,000 on construction of an orchestra pit on 1 February 2016. Cassandra Pty Ltd pays for the cost of enlarging the stage from its retained earnings. Following the enlarging of the stage and the construction of the orchestra pit, performances of Cassandra Pty Ltd’s production of ‘Carmen’ commence on 1 March 2016 and run until 30 June 2016. Cassandra Pty Ltd has revenues of $150,000 from this season of ‘Carmen’ at the Melbourne theatre.

Oscar Pty Ltd, an Australian resident company for tax purposes, purchases the land and theatre building from Cassandra Pty Ltd on 1 July 2016 for $3,000,000. Cassandra Pty Ltd uses the $1,200,000 of the sale proceeds to repay the loan from Big Bank Ltd. During the entire period of the loan interest had been payable at the rate of 5% per annum on an interest only basis. Cassandra Pty Ltd paid interest at that rate each month through the term of the loan.

Shortly after Oscar Pty Ltd purchases the theatre Melbourne suffers a mild earth tremor. At about the same time Oscar (the sole shareholder and director of Oscar Pty Ltd) watches a documentary about earthquake damage in Christchurch New Zealand. As a result Oscar decides to have strengthening works carried out on the theatre building in Melbourne so that it can withstand an earthquake of similar force to the Christchurch earthquakes. Earthquakes are very rare in Melbourne and there has never been a recorded incidence in Melbourne of an earthquake of the same force as any of the Christchurch earthquakes. Oscar is advised by his engineer that the strengthening works will only increase the life of the building if there is an earthquake of equivalent force to the earthquakes that have occurred in Christchurch.

The strengthening works commence on 10th July 2016. Oscar Pty Ltd agrees to pay the builder (Earnest Constructions Pty Ltd, an Australian resident company) on an instalment basis throughout the works. The total amount payable will be $500,000 payable by 4 equal instalments over a sixteen month period. The first instalment is paid on signing the construction contract on 1 July 2016. The contract calls for each of the remaining instalments to be paid on the first day of November 2016, the first day of March 2017, the first day of July 2017 and the first day of November 2017.

Oscar Pty Ltd opens the theatre as The Wild Theatre. The first play that is performed at the theatre is ‘Boy versus Wild’ written by Oscar. In December 2016 Oscar Pty Ltd employs carpenters, stage and lighting technicians, a finance manager, and a marketing manager. The salary cost for these employees is $15,000 per week. Oscar directs the play himself. Oscar Pty Ltd also spends $50,000 in January 2016 for material to be used in constructing sets for the theatre. After the play has been performed the sets will be demolished and sent to the local Waste Disposal Centre. Oscar Pty Ltd also enters into contracts with several actors to rehearse the play for six weeks and perform in the play for a period of three months. The contract with the actors sets their pay at $500 per rehearsal and $1000 per performance increasing to $1500 per performance if more than 50% of performances in the first month are sold out.

After six weeks of rehearsals in February and March 2017 ‘Boy versus Wild’ opens at the Wild Theatre on 1 April 2017. Unfortunately for Oscar Pty Ltd and the actors none of the performances in September are sold out. Patrons in the theatre complain about the disruption to access caused by the earthquake strengthening works that are still proceeding. As a result Oscar Pty Ltd refuses to pay the 1 July 2017 and 1 November 2017 instalments on the building works. Earnest Constructions Pty Ltd commences court proceedings for breach of contract and suspends the building works on 2nd November 2017.

REQUIRED:

1. Advise Cassandra Pty Ltd of the capital gains tax consequences of the above transactions for it. 10 Marks

2. Advise Oscar Pty Ltd as to whether, and if so when and to what extent, any of the above expenditures that it incurs will be deductible to in for Australian income tax purposes. 10 Marks

3. Advise Ernest Constructions Pty Ltd as to whether and, if so, when the instalment payments in relation to its contract with Oscar Pty Ltd will be included in its assessable income. 5 Marks

Students who believe that further information is required before giving a definitive advice on any of these issues should state clearly what that information is and should state clearly what assumptions they have made in answering the question. No further information about the facts of the question will be provided by lecturers or on Moodle.

REFERENCES – students may find the following references useful in answering the assignment but are not required to refer to these authorities and can refer to other authorities if they consider them to be relevant. Although the list might look intimidating, what is required is ascertaining the relevant principle and applying it to the facts.

Income Tax Assessment Act1997

s6-5; s8-1; s25-10; Div 40 generally and in particular s40-180; s40-185; s40-195; Div 43 generally and in particular s42-210; s43-230 and s43-235; s103-15; s104-10; s108-55; s110-25; s110-35; s110-45; s116-20

Cases

Wangaratta Woollen Mills (1969) 119 CLR 1 (what is plant)

Imperial Chemical Industries of Australia and New Zealand Ltd v FCT (1970) 120 CLR 396 (what is plant)

Carpentaria Transport Pty Ltd v FCT (1990) 21 ATR 513; 90 ATC 4590 (what is plant)

Broken Hill Co Pty Ltd (1969) 120 CLR 240 (treatment of costs of demolition)

Arthur Murray (1965) 114 CLR 314 (advance payments)

J Rowe & Sons Pty Ltd(1971) 124 CLR 421 (instalment sales)

W. Thomas & Co (1965) 115 CLR 58 (initial repairs)

Placer Pacific Management Pty Ltd 95 ATC 4459 (post cessation expenditure)

Steele 99 ATC 4242 (pre commencement expenditure)

Commonwealth Aluminium (1977) 77 ATC 4151 (defeasible obligations)

Carden(1938) 63 CLR 108 (and other cases on the cash v accruals issue)

Australian Gas Light Co 83 ATC 4800 (contingent right to payment)

BHP Billiton Petroleum (Bass Straight) Ltd2002 ATC 5169

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Reader Response 1 First reader response paper on “Where Are You Going, Where Have You Been?”, “The Cask of Amontillado,” or “Girl.” Hard copies and e-mailed drafts will not be accepted for grading. Late drafts will not be accepted for grading. Your reader response papers should follow MLA formatting (as outlined above); the final draft should be 3-5 pages in length and should accomplish the following: Briefly summarize the reading(s) you discuss. Give your reaction to the text. Your reaction should be one or more of the following: Agreement/disagreement with the ideas in the text. Reaction to how the ideas in the text relate to your own experience. Reaction to how ideas in the text relate to other things you’ve read. Your analysis of the author and audience. Your evaluation of how this text tries to convince the reader and whether it is effective. Further exploring a topic of interest or a theme from the text. While reader responses tend to be more informal and utilize first person perspective, for your reader responses, please remain in third person perspective. For your first reader response, please choose one of the following topics or a topic of your own choice: “Where Are You Going, Where Have You Been?” 1. Music is played throughout “Where Are You Going, Where Have You Been?” What role does music play in this story? Examine the use of music throughout the story focusing on particular scenes in the story. Use quotes, summary and paraphrase from the text to support your response. 2. What is life like for women in Joyce Carol Oates’ “Where Are You Going, Where Have You Been?” Compare and contrast the different examples of female characters Oates presents in her story. Use quotes, summary and paraphrase from the text to support your response. 3. Who is Arnold Friend? What does he represent for Connie and what role does he play in Oates’ story? Use quotes, summary and paraphrase from the text to support your response. “The Cask of Amontillado” 1. “The Cask of Amontillado” is a chilling story, but Poe also utilizes humorous elements as the narrator, Montressor, recounts his experience with Fortunato. Identify elements in that story that can be regarded as humorous and analyze what this humor adds to the story. Use quotes, summary and paraphrase from the text to support your response. 2. Poe’s narrator in “The Cask of Amontillado” could certainly be considered “unreliable,” as he seems to descend further into madness as he leads Fortunato down into the catacombs to his doom. Through a close analysis of the text, argue whether Montressor is the villain of Poe’s story, or simply getting even for some wrong Fortunato has perpetrated against him. Use the text for support. 3. Identify one or more of the main themes in “The Cask of Amontillado.” What do you think Poe is saying about the human condition and life in general in this story? Use the text for support. “Girl” by Jamaica Kincaid 1. Education is a clear theme of “Girl” by Jamaica Kincaid. Discuss the theme of education and how the narrator’s instructions to the “girl” will help her succeed or fail in the future. Use the text for support. 2. Food is mentioned multiple times in “Girl.” How does food relate to the message the mother is trying to deliver to her daughter? Use the text to support your response. 3. What is “benna?” The entire story shows the mother giving advice that is meant to show her daughter the importance of domesticity over sexuality. Compare the different examples of advice about domestic life and sexuality that the mother gives her daughter. What message do you think the daughter will take away from her mother’s advice? Use the text for support.

Reader Response 1 First reader response paper on “Where Are You Going, Where Have You Been?”, “The Cask of Amontillado,” or “Girl.” Hard copies and e-mailed drafts will not be accepted for grading. Late drafts will not be accepted for grading.

Your reader response papers should follow MLA formatting (as outlined above); the final draft should be 3-5 pages in length and should accomplish the following:

Briefly summarize the reading(s) you discuss. Give your reaction to the text. Your reaction should be one or more of the following:

Agreement/disagreement with the ideas in the text. Reaction to how the ideas in the text relate to your own experience. Reaction to how ideas in the text relate to other things you’ve read. Your analysis of the author and audience. Your evaluation of how this text tries to convince the reader and whether it is effective. Further exploring a topic of interest or a theme from the text. While reader responses tend to be more informal and utilize first person perspective, for your reader responses, please remain in third person perspective.

For your first reader response, please choose one of the following topics or a topic of your own choice:

“Where Are You Going, Where Have You Been?”

1. Music is played throughout “Where Are You Going, Where Have You Been?” What role does music play in this story? Examine the use of music throughout the story focusing on particular scenes in the story. Use quotes, summary and paraphrase from the text to support your response.

2. What is life like for women in Joyce Carol Oates’ “Where Are You Going, Where Have You Been?” Compare and contrast the different examples of female characters Oates presents in her story. Use quotes, summary and paraphrase from the text to support your response.

3. Who is Arnold Friend? What does he represent for Connie and what role does he play in Oates’ story? Use quotes, summary and paraphrase from the text to support your response.

“The Cask of Amontillado”

1. “The Cask of Amontillado” is a chilling story, but Poe also utilizes humorous elements as the narrator, Montressor, recounts his experience with Fortunato. Identify elements in that story that can be regarded as humorous and analyze what this humor adds to the story. Use quotes, summary and paraphrase from the text to support your response.

2. Poe’s narrator in “The Cask of Amontillado” could certainly be considered “unreliable,” as he seems to descend further into madness as he leads Fortunato down into the catacombs to his doom. Through a close analysis of the text, argue whether Montressor is the villain of Poe’s story, or simply getting even for some wrong Fortunato has perpetrated against him. Use the text for support.

3. Identify one or more of the main themes in “The Cask of Amontillado.” What do you think Poe is saying about the human condition and life in general in this story? Use the text for support.

“Girl” by Jamaica Kincaid

1. Education is a clear theme of “Girl” by Jamaica Kincaid. Discuss the theme of education and how the narrator’s instructions to the “girl” will help her succeed or fail in the future. Use the text for support.

2. Food is mentioned multiple times in “Girl.” How does food relate to the message the mother is trying to deliver to her daughter? Use the text to support your response.

3. What is “benna?” The entire story shows the mother giving advice that is meant to show her daughter the importance of domesticity over sexuality. Compare the different examples of advice about domestic life and sexuality that the mother gives her daughter. What message do you think the daughter will take away from her mother’s advice? Use the text for support.

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I got 0 in this please fix it F (0%) 0/5 points This is your current grade based on the scores you have earned so far. It may change if any new scores are entered. Add a comment Assignment Grades Article Questions 1 0/5 (0%, F) Article Questions 2 –/5 Article Questions 3 –/5 Article Questions 4 –/5 Article Questions 5 –/5 Organizational Assessment –/50 Proposal Poster Presentation –/50 Research Proposal –/100 Student Topic Presentations –/75

I got 0 in this please fix it F (0%) 0/5 points This is your current grade based on the scores you have earned so far. It may change if any new scores are entered. Add a comment Assignment Grades Article Questions 1 0/5 (0%, F) Article Questions 2 –/5 Article Questions 3 –/5 Article Questions 4 –/5 Article Questions 5 –/5 Organizational Assessment –/50 Proposal Poster Presentation –/50 Research Proposal –/100 Student Topic Presentations –/75

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Imagine that the revenue in your chosen organization has significantly decreased in recent quarters and the chief executive officer of the organization has asked you to prepare a report of the core competencies. Resource: C-Level Report (attached) Choose an organization in the taxi industry (Uber). Write a 1,400- to 1,750-word report on core competencies best practices and compare those best practices to Uber’s. Use your comparison to propose a set of actions that will lead to improving your organization’s core competencies. (Your organization is also in the taxi industry) Format your paper according to APA guidelines. Include in your report the information outlined in the C-Level Report.

Imagine that the revenue in your chosen organization has significantly decreased in recent quarters and the chief executive officer of the organization has asked you to prepare a report of the core competencies.

Resource: C-Level Report (attached)

Choose an organization in the taxi industry (Uber).

Write a 1,400- to 1,750-word report on core competencies best practices and compare those best practices to Uber’s. Use your comparison to propose a set of actions that will lead to improving your organization’s core competencies. (Your organization is also in the taxi industry)

Format your paper according to APA guidelines.

Include in your report the information outlined in the C-Level Report.

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SEAWORLD SAN ANTONIO GETS SOCIAL TO BUILD INTEREST IN NEW RIDE When SeaWorld San Antonio needed to get the word out quickly about its new Journey to Atlantis water coaster ride, public relations specialist Kami Huyse of My PR Pro ( http://myprpro.com) worked with SeaWorld’s Director of Communications Fran Stephenson to survey the options. The team had three objectives: (1) build relationships with the community of coaster enthusiasts, (2) create awareness of the new ride, and (3) increase visitor traffi c. You can see that these goals stretch across three time frames: long-term relationship building, midterm awareness, and short-term sales. It’s a lot to ask of any communication campaign—and particularly a campaign with the time and budget limits that Huyse and Stephenson faced. Hard-core roller coaster enthusiasts are really enthusiastic about their coasters. They like to learn about new rides, compare their impressions of rides they’ve been on, organize trips to visit rides around the country, and even work to preserve some of the classic old roller coasters that dot the American landscape. Dozens of websites, forums, blogs, and coaster groups share information, including the 7,000-member American Coaster Enthusiasts ( www.aceonline.org ). With Huyse’s expertise in social media, she recognized an opportunity when she saw one: They would connect with the “thrill ride” community online. Their research identifi ed 22 blogs and forums that were particularly active and infl uential in the enthusiast community. “The primary strategy was to treat coaster bloggers as a VIP audience and to create content to suit their needs,” Huyse explains. These bloggers were also invited to attend a special prelaunch media day to test-drive Journey to Atlantis. As part of this effort to provide opinion infl uencers and the general public with enticing content about the new ride, SeaWorld’s in-house communication staff created 11 videos and a 45-image photo collection that were made available for public use through YouTube, Flickr, and Veoh. The staff also created a content-rich website with social media functionality to add to SeaWorld’s existing web presence to serve as the “hub” of the launch campaign. The results? One of the knocks against social media as a business communication platform is that its effects can be diffi cult or impossible to measure. While that is true in many cases, Huyse and her colleagues were able to make three specifi c measurements that highlight the success of SeaWorld’s social media effort. First, of the 22 targeted VIP enthusiast groups, more than half covered the opening in their blogs or forums, including the infl uential Theme Park Insider website ( www.themeparkinsider.com). Second, more than 50 other websites created links to the Journey to Atlantis campaign website, and 30 of those were from coaster enthusiast websites. These numbers might sound small, but remember that social media is a game of multiplication: Small numbers of people spreading a message can quickly turn into large numbers. The third and ultimately most important measurement is the impact on SeaWorld’s business. Fortunately for Huyse’s team, a measuring device was already in place: the exit surveys that SeaWorld routinely conducts, asking park visitors about their experiences and decisions to visit. Using data from this survey, the team could identify which media efforts drove visitors to the park most effectively and then calculate the cost-effectiveness of each method to see how the social media campaign compared to SeaWorld’s other, ongoing promotional efforts. While television was almost as effective as online efforts at driving traffi c through the front gate, the net cost to get one visitor through the front gate was nearly fi ve times higher for television. And in terms of actual sales, based on SeaWorld’s average per capita revenue fi gure, the social media campaign generated more than $2.6 million in revenue—for only $44,000 in total costs. From a marketing point of view, that’s even more thrilling than a ride on the latest roller coaster.47 Question 1. With social media proving to be a cost-effective way to attract park visitors, should SeaWorld abandon its other promotional efforts and focus everything on social media? Why or why not? 2. What steps can SeaWorld take to maintain a relationship with coaster enthusiasts, now that the excitement surrounding the new ride has faded? 3. Do coaster fans such as members of American Coaster Enthusiasts constitute a brand community as described in the chapter? Why or why not?

SEAWORLD SAN ANTONIO GETS SOCIAL TO BUILD INTEREST IN NEW RIDE

When SeaWorld San Antonio needed to get the word out quickly about its new Journey to Atlantis water coaster ride, public relations specialist Kami Huyse of My PR Pro ( http://myprpro.com) worked with SeaWorld’s Director of Communications Fran Stephenson to survey the options. The team had three objectives: (1) build relationships with the community of coaster enthusiasts, (2) create awareness of the new ride, and (3) increase visitor traffi c. You can see that these goals stretch across three time frames: long-term relationship building, midterm awareness, and short-term sales. It’s a lot to ask of any communication campaign—and particularly a campaign with the time and budget limits that Huyse and Stephenson faced. Hard-core roller coaster enthusiasts are really enthusiastic about their coasters. They like to learn about new rides, compare their impressions of rides they’ve been on, organize trips to visit rides around the country, and even work to preserve some of the classic old roller coasters that dot the American landscape. Dozens of websites, forums, blogs, and coaster groups share information, including the 7,000-member American Coaster Enthusiasts ( www.aceonline.org ). With Huyse’s expertise in social media, she recognized an opportunity when she saw one: They would connect with the “thrill ride” community online. Their research identifi ed 22 blogs and forums that were particularly active and infl uential in the enthusiast community. “The primary strategy was to treat coaster bloggers as a VIP audience and to create content to suit their needs,” Huyse explains. These bloggers were also invited to attend a special prelaunch media day to test-drive Journey to Atlantis. As part of this effort to provide opinion infl uencers and the general public with enticing content about the new ride,  SeaWorld’s in-house communication staff created 11 videos and a 45-image photo collection that were made available for public use through YouTube, Flickr, and Veoh. The staff also created a content-rich website with social media functionality to add to SeaWorld’s existing web presence to serve as the “hub” of the launch campaign. The results? One of the knocks against social media as a business communication platform is that its effects can be diffi cult or impossible to measure. While that is true in many cases, Huyse and her colleagues were able to make three specifi c measurements that highlight the success of SeaWorld’s social media effort. First, of the 22 targeted VIP enthusiast groups, more than half covered the opening in their blogs or forums, including the infl uential Theme Park Insider website ( www.themeparkinsider.com). Second, more than 50 other websites created links to the Journey to Atlantis campaign website, and 30 of those were from coaster enthusiast websites. These numbers might sound small, but remember that social media is a game of multiplication: Small numbers of people spreading a message can quickly turn into large numbers. The third and ultimately most important measurement is the impact on SeaWorld’s business. Fortunately for Huyse’s team, a measuring device was already in place: the exit surveys that SeaWorld routinely conducts, asking park visitors about their experiences and decisions to visit. Using data from this survey, the team could identify which media efforts drove visitors to the park most effectively and then calculate the cost-effectiveness of each method to see how the social media campaign compared to SeaWorld’s other, ongoing promotional efforts. While television was almost as effective as online efforts at driving traffi c through the front gate, the net cost to get one visitor through the front gate was nearly fi ve times higher for television. And in terms of actual sales, based on SeaWorld’s average per capita revenue fi gure, the social media campaign generated more than $2.6 million in revenue—for only $44,000 in total costs. From a marketing point of view, that’s even more thrilling than a ride on the latest roller coaster.47

Question

1. With social media proving to be a cost-effective way to attract park visitors, should SeaWorld abandon its other promotional efforts and focus everything on social media? Why or why not?

2. What steps can SeaWorld take to maintain a relationship with coaster enthusiasts, now that the excitement surrounding the new ride has faded?

 

3. Do coaster fans such as members of American Coaster Enthusiasts constitute a brand community as described in the chapter? Why or why not?

 

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Sharpening Your Communication Skills The good news: The current events blog you started as a hobby has become quite popular. The bad news: The blog now takes up so much of your time that you’ve had to quit a part-time job you were using to supplement your regular income. After some discussions with other bloggers, you decide to join Google’s AdSense program ( www.google.com/adsense ) to help pay for the costs of operating your blog. With this program, small ads triggered by keywords in the content you publish will appear on your site. However, you’re worried that your audience will think you’ve “sold out” because you’re now generating revenue from your blog. Write a short message that could be posted on your blog, explaining why you consider it necessary to run ads and assuring your readers of your continued objectivity, even if that means criticizing organizations whose ads might appear on your blog. Building Your Team Skills In small groups, discuss three or four recent ads or consumer promotions (in any media) that you think were particularly effective. Using the knowledge you’ve gained from this chapter, try to come to agreement on which attributes contributed to the success of each ad or promotion. For instance: Was it persuasive? Informative? Competitive? Creative? Did it have logical or emotional appeal? Did it stimulate you to buy the product? Why? Compare your results with those of other teams. Did you mention the same ads? Did you list the same attributes? Developing Your Research Skills Choose an article from recent issues of business journals or newspapers (print or online editions) that describes the advertising or promotion efforts of a particular company or trade association. Question 1. Who is the company or trade association targeting? 2. What specific marketing objectives is the organization trying to accomplish? 3. What role does advertising play in the promotion strategy? What other promotion techniques does the article mention? Are any of them unusual or noteworthy? Why?

Sharpening Your Communication Skills

The good news: The current events blog you started as a hobby has become quite popular. The bad news: The blog now takes up so much of your time that you’ve had to quit a part-time job you were using to supplement your regular income. After some discussions with other bloggers, you decide to join Google’s AdSense program ( www.google.com/adsense ) to help pay for the costs of operating your blog. With this program, small ads triggered by keywords in the content you publish will appear on your site. However, you’re worried that your audience will think you’ve “sold out” because you’re now generating revenue from your blog. Write a short message that could be posted on your blog, explaining why you consider it necessary to run ads and assuring your readers of your continued objectivity, even if that means criticizing organizations whose ads might appear on your blog.

Building Your Team Skills

In small groups, discuss three or four recent ads or consumer promotions (in any media) that you think were particularly effective. Using the knowledge you’ve gained from this chapter, try to come to agreement on which attributes contributed to the success of each ad or promotion. For instance: Was it persuasive? Informative? Competitive? Creative? Did it have logical or emotional appeal? Did it stimulate you to buy the product? Why? Compare your results with those of other teams. Did you mention the same ads? Did you list the same attributes?

Developing Your Research Skills

Choose an article from recent issues of business journals or newspapers (print or online editions) that describes the advertising or promotion efforts of a particular company or trade association.

Question

1. Who is the company or trade association targeting?

2. What specific marketing objectives is the organization trying to accomplish?

3. What role does advertising play in the promotion strategy? What other promotion techniques does the article mention? Are any of them unusual or noteworthy? Why?

 

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GOOGLE THIS: “COST CONTROL” By just about any measure you can think of, Google is one of the most spectacular success stories in the history of business. However, even a company as wealthy as Google has to control its spending. Google’s case is unusual in the sense of its sheer scale, but the story is not unique. When a young company is growing quickly and money is pouring in from sales or from investors, the natural tendency is to focus on building the business and capturing market opportunities. The less exciting—but ultimately no less important—task of creating a sustainable cost structure with rigorous expense management often doesn’t get as much attention in the early years. In some companies, rapid growth in a hot economy can mask serious underlying problems that threaten the long-term viability of the enterprise. In the dot-com boom of the late 1990s, for instance, more than a few high-flying companies fell to earth when investors who had enjoyed a rocket ride in the stock market realized the companies didn’t have workable business models. During the mid-2000s, Google’s revenue had been increasing at a spectacular pace, from $10.6 billion in 2006, to $16.6 billion in 2007, to $21.8 billion in 2008. However, expenses were growing at an even faster rate. As a result, the company’s profit margin dropped from 29 percent in 2006 to around 20 percent in 2008 (still 5 percentage points better than the industry average); 2008 ended with the first-ever drop in quarterly profits in the company’s history. The cooling economy and slowing profits didn’t expose any fatal flaws in the Google business model, but the drop certainly was a wake-up call that emphasized the need to transition to the next stage of organizational development. It was time for the accounting and financial management functions to play a more prominent role and to transform a wild and wooly entrepreneurial success story into a major corporation with stable finances. Back in 2001, Google cofounders Larry Page and Sergey Brin brought in Eric Schmidt, a seasoned technology industry executive, to guide the company’s growth beyond its initial start-up stage. Under Schmidt’s leadership, Google expanded from 200 employees to more than 20,000 and secured its place as one of the world’s most influential companies. In 2008, facing the need for a more methodical approach to accounting and financial management, Schmidt brought in another executive with a proven track record in corporate leadership. Patrick Pichette made his name helping Bell Canada reduce operating expenses by $2 billion, and his proven ability to bring expenses in line with revenue was just what Google needed. Pichette and other executives tackled expenses at three levels: employee perks, staffing, and project investment. It’s safe to say the employee perks at Google are still better than you’ll find just about anywhere, but they have been trimmed back to save money. The company no longer pays for the annual trip, and the $1,000 annual cash bonus was replaced with a $400 smartphone. The 50 percent discount on Google-branded clothes and other products was reduced to 20 percent, and the subsidy on hybrid vehicles was trimmed as well. On the plus side, employees still get free gourmet meals and subsidized concierge services to take some of the hassle out of handling life’s little chores. At the staffing level, Google is taking a much harder look at hiring practices to better align staffing with project needs. Tellingly, the first layoffs in the company’s history, in January 2009, involved 100 recruiters whose services were no longer needed because Google’s hiring rate had slowed so dramatically. Thousands of contract workers were let go as well. The vaunted “20 percent time” was reevaluated, too, with the company deciding to focus engineers’ time more directly on core projects. At the project and program levels, Google is scrutinizing its investments more carefully and pulling the plug on lesspromising activities. Some of the higher-profile shutdowns in the past few years include Lively, a virtual world that would have competed with SecondLife; dMarc Broadcasting, a radio advertising company; Google Wave, a collaboration platform; and Google Labs, which did a lot of the company’s speculative tinkering and experimentation. “More wood behind fewer arrows” is how Google describes its new emphasis on putting its resources into the projects most likely to have sizable longterm success. Pichette leads by example when it comes to cost control, too—flying economy class in North America and riding to work on a bicycle that is so beat up he says he doesn’t even bother to lock it up. While continuing to manage costs more carefully, the company is also stepping up its efforts to generate more revenue. Key areas of focus include expanding the company’s activities in mobile phone advertising and display advertising (graphical ads as opposed to the text-only ads that now appear next to Google searches), expanding Google1 to take on the mighty Facebook in social networking, growing its software and e-book revenue, and continuing to push YouTube toward profitability. To say the effort has been a success would be a bit of an understatement. Expenses are down, and free cash flow is up dramatically. Even after that rough patch when the economy slowed ad sales, Google still ended 2008 with over $20 billion in current assets—and it raised that to almost $30 billion in 2009, over $40 billion in 2010 and headed for $50 billion and beyond. Asked why the company was sitting on so much cash, Pichette explains that in the fast-changing world of search and other digital services, Google might need to jump on an acquisition almost overnight, with potentially billions of dollars of cash in hand. It might not have an infinite supply of money, but with a new focus on careful accounting, Google will have plenty of cash to keep its innovation engine churning out new ideas for years to come.25 Question 1. Given the eventual need for rigorous financial management, should every company have extensive cost controls in place from the first moment of operation? Explain your answer. 2. Google recently had a debt-to-equity ratio of 0.04. Microsoft, one of its key competitors, had a debt-to-equity ratio of 0.15. From a bank’s point of view, which of the two companies is a more attractive loan candidate, based on this ratio? Why? 3. At the end of 2008, Google’s current ratio was 8.77. Midway through 2009, the current ratio was up to 11.91. Does this make Google more or less of a credit risk in the eyes of potential lenders? Why?

GOOGLE THIS: “COST CONTROL”

By just about any measure you can think of, Google is one of the most spectacular success stories in the history of business. However, even a company as wealthy as Google has to control its spending. Google’s case is unusual in the sense of its sheer scale, but the story is not unique. When a young company is growing quickly and money is pouring in from sales or from investors, the natural tendency is to focus on building the business and capturing market opportunities. The less exciting—but ultimately no less important—task of creating a sustainable cost structure with rigorous expense management often doesn’t get as much attention in the early years. In some companies, rapid growth in a hot economy can mask serious underlying problems that threaten the long-term viability of the enterprise. In the dot-com boom of the late 1990s, for instance, more than a few high-flying companies fell to earth when investors who had enjoyed a rocket ride in the stock market realized the companies didn’t have workable business models. During the mid-2000s, Google’s revenue had been increasing at a spectacular pace, from $10.6 billion in 2006, to $16.6 billion in 2007, to $21.8 billion in 2008. However, expenses were growing at an even faster rate. As a result, the company’s profit margin dropped from 29 percent in 2006 to around 20 percent in 2008 (still 5 percentage points better than the industry average); 2008 ended with the first-ever drop in quarterly profits in the company’s history. The cooling economy and slowing profits didn’t expose any fatal flaws in the Google business model, but the drop certainly was a wake-up call that emphasized the need to transition to the next stage of organizational development. It was time for the accounting and financial management functions to play a more prominent role and to transform a wild and wooly entrepreneurial success story into a major corporation with stable finances. Back in 2001, Google cofounders Larry Page and Sergey Brin brought in Eric Schmidt, a seasoned technology industry executive, to guide the company’s growth beyond its initial start-up stage. Under Schmidt’s leadership, Google expanded from 200 employees to more than 20,000 and secured its place as one of the world’s most influential companies. In 2008, facing the need for a more methodical approach to accounting and financial management, Schmidt brought in another executive with a proven track record in corporate leadership. Patrick Pichette made his name helping Bell Canada reduce operating expenses by $2 billion, and his proven ability to bring expenses in line with revenue was just what Google needed. Pichette and other executives tackled expenses at three levels: employee perks, staffing, and project investment. It’s safe to say the employee perks at Google are still better than you’ll find just about anywhere, but they have been trimmed back to save money. The company no longer pays for the annual trip, and the $1,000 annual cash bonus was replaced with a $400 smartphone. The 50 percent discount on Google-branded clothes and other products was reduced to 20 percent, and the subsidy on hybrid vehicles was trimmed as well. On the plus side, employees still get free gourmet meals and subsidized concierge services to take some of the hassle out of handling life’s little chores. At the staffing level, Google is taking a much harder look at hiring practices to better align staffing with project needs. Tellingly, the first layoffs in the company’s history, in January 2009, involved 100 recruiters whose services were no longer needed because Google’s hiring rate had slowed so dramatically. Thousands of contract workers were let go as well. The vaunted “20 percent time” was reevaluated, too, with the company deciding to focus engineers’ time more directly on core projects. At the project and program levels, Google is scrutinizing its investments more carefully and pulling the plug on lesspromising activities. Some of the higher-profile shutdowns in the past few years include Lively, a virtual world that would have competed with SecondLife; dMarc Broadcasting, a radio advertising company; Google Wave, a collaboration platform; and Google Labs, which did a lot of the company’s speculative tinkering and experimentation. “More wood behind fewer arrows” is how Google describes its new emphasis on putting its resources into the projects most likely to have sizable longterm success.  Pichette leads by example when it comes to cost control, too—flying economy class in North America and riding to work on a bicycle that is so beat up he says he doesn’t even bother to lock it up. While continuing to manage costs more carefully, the company is also stepping up its efforts to generate more revenue. Key areas of focus include expanding the company’s activities in mobile phone advertising and display advertising (graphical ads as opposed to the text-only ads that now appear next to Google searches), expanding Google1 to take on the mighty Facebook in social networking, growing its software and e-book revenue, and continuing to push YouTube toward profitability. To say the effort has been a success would be a bit of an understatement. Expenses are down, and free cash flow is up dramatically. Even after that rough patch when the economy slowed ad sales, Google still ended 2008 with over $20 billion in current assets—and it raised that to almost $30 billion in 2009, over $40 billion in 2010 and headed for $50 billion and beyond. Asked why the company was sitting on so much cash, Pichette explains that in the fast-changing world of search and other digital services, Google might need to jump on an acquisition almost overnight, with potentially billions of dollars of cash in hand. It might not have an infinite supply of money, but with a new focus on careful accounting, Google will have plenty of cash to keep its innovation engine churning out new ideas for years to come.25

Question

1. Given the eventual need for rigorous financial management, should every company have extensive cost controls in place from the first moment of operation? Explain your answer.

2. Google recently had a debt-to-equity ratio of 0.04. Microsoft, one of its key competitors, had a debt-to-equity ratio of 0.15. From a bank’s point of view, which of the two companies is a more attractive loan candidate, based on this ratio? Why?

3. At the end of 2008, Google’s current ratio was 8.77. Midway through 2009, the current ratio was up to 11.91. Does this make Google more or less of a credit risk in the eyes of potential lenders? Why?

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VISA FUNDS ITS FUTURE WITH RECORD-SETTING IPO If ever a company needed a few billion dollars, it was Visa in late 2007. Still operating as a privately held joint venture owned by its member banks, Visa didn’t have access to the stock market as a fundraising mechanism. Archrival MasterCard was reaping the benefits of its recent IPO, generating several billion dollars in fresh capital and creating the opportunity to use stock options to recruit and reward employees. Moreover, after settling lawsuits brought against it by merchants and two other credit card companies, Visa had rung up more than $4 billion in legal liabilities. Plus, the six large banks that made up the primary ownership group within the Visa association were desperately in need of cash to help ride out the recession and the credit crunch. On top of these challenges, Visa had to keep investing in new paymentprocessing systems and technologies as consumers around the world continued to increase their use of conventional credit and debit cards and as promising new opportunities such as mobile commerce were coming up to speed. An IPO could help solve all these funding dilemmas, but it would prove to be much more complicated than a normal IPO. One of the essential steps was creating a company that could actually go public. In late 2007, Visa Inc., was spun off from the Visa association as a wholly owned subsidiary. This new firm is the company that actually filed the IPO—with the U.S. economy in the depths of the worst downturn since the Great Depression of the 1930s and the financial services industry in turmoil. One could hardly have picked a worse time to go public, as evidenced by the fact that the normal annual flow of IPOs had slowed to a trickle. However, Visa had several factors working in its favor. First, with one of the world’s best-known brand names and a half century of growth behind it, Visa didn’t need to introduce itself to investors the way most companies do when pitching an IPO. Second, in investor-speak, Visa had a wide “economic moat,” meaning its revenue-generating capacity was safeguarded by barriers to entry—including a powerful brand, established relationships with millions of companies worldwide, and a global transaction-processing network—that new market entrants would find hard to overcome. Third, and most important from the timing perspective, Visa isn’t really a financial services company in the sense of lending money or issuing credit cards, so it wasn’t exposed to the credit meltdown the way banks and credit card companies were. Although it is intertwined with the financial sector, Visa is actually more of a data processing company than a finance company. In its prospectus, Visa indicated that it expected to net $16 or $17 billion from the IPO and intended to distribute $10 billion of that to its member institutions, use another $3 billion toward its legal liabilities, and reserve the remaining few billion for general corporate purposes. This was a staggering amount of money to generate in an IPO during the best of times and an almost unimaginable amount to generate during the worst of times. But that is exactly what Visa did. It went public on March 19, 2008, and broke the record for the largest IPO ever by a U.S. company—over $19 billion after some optional shares were redeemed by the two lead underwriters on the giant deal, Goldman Sachs and JPMorgan Chase. As both an underwriter earning fees on the IPO and one of the cash-hungry member banks of the Visa association benefiting from the stock sale, JPMorgan Chase made over $1 billion on the deal. In a turbulent stock market and an even rougher economy over the past several years, Visa’s new stock has fared well, all things considered. By late 2011, it was up around 30 percent from its IPO price. Archrival MasterCard’s stock did slightly better, and both companies were outpacing the overall stock market by a healthy margin. Visa’s growth in the coming years could be hampered by any protracted slowdown in consumer spending, because fewer purchases means fewer transactions for Visa to process. However, more transactions are shifting from cash to cards, mobile commerce is on the rise, and credit card use is only just beginning to ramp up in many areas around the world—and between its core processing business and recent acquisitions, Visa is positioned to benefit from all three trends.21 Question 1. How might Visa executives use scenario planning in the budgeting process? 2. Could Visa have accomplished its funding goals through short-term or long-term debt financing instead? Why or why not? 3. As Visa continues to explore growth opportunities, should it consider becoming a lender by issuing cards itself or lending money to banks that issue cards? Why or why not?

VISA FUNDS ITS FUTURE WITH RECORD-SETTING IPO

If ever a company needed a few billion dollars, it was Visa in late 2007. Still operating as a privately held joint venture owned by its member banks, Visa didn’t have access to the stock market as a fundraising mechanism. Archrival MasterCard was reaping the benefits of its recent IPO, generating several billion dollars in fresh capital and creating the opportunity to use stock options to recruit and reward employees. Moreover, after settling lawsuits brought against it by merchants and two other credit card companies, Visa had rung up more than $4 billion in legal liabilities. Plus, the six large banks that made up the primary ownership group within the Visa association were desperately in need of cash to help ride out the recession and the credit crunch. On top of these challenges, Visa had to keep investing in new paymentprocessing systems and technologies as consumers around the world continued to increase their use of conventional credit and debit cards and as promising new opportunities such as mobile commerce were coming up to speed. An IPO could help solve all these funding dilemmas, but it would prove to be much more complicated than a normal IPO. One of the essential steps was creating a company that could actually go public. In late 2007, Visa Inc., was spun off from the Visa association as a wholly owned subsidiary. This new firm is the company that actually filed the IPO—with the U.S. economy in the depths of the worst downturn since the Great Depression of the 1930s and the financial services industry in turmoil. One could hardly have picked a worse time to go public, as evidenced by the fact that the normal annual flow of IPOs had slowed to a trickle. However, Visa had several factors working in its favor. First, with one of the world’s best-known brand names and a half century of growth behind it, Visa didn’t need to introduce itself to investors the way most companies do when pitching an IPO. Second, in investor-speak, Visa had a wide “economic moat,” meaning its revenue-generating capacity was safeguarded by barriers to entry—including a powerful brand, established relationships with millions of companies worldwide, and a global transaction-processing network—that new market entrants would find hard to overcome. Third, and most important from the timing perspective, Visa isn’t really a financial services company in the sense of lending money or issuing credit cards, so it wasn’t exposed to the credit meltdown the way banks and credit card companies were. Although it is intertwined with the financial sector, Visa is actually more of a data processing company than a finance company. In its prospectus, Visa indicated that it expected to net $16 or $17 billion from the IPO and intended to distribute $10 billion of that to its member institutions, use another $3 billion toward its legal liabilities, and reserve the remaining few billion for general corporate purposes. This was a staggering amount of money to generate in an IPO during the best of times and an almost unimaginable amount to generate during the worst of times. But that is exactly what Visa did. It went public on March 19, 2008, and broke the record for the largest IPO ever by a U.S. company—over $19 billion after some optional shares were redeemed by the two lead underwriters on the giant deal, Goldman Sachs and JPMorgan Chase. As both an underwriter earning fees on the IPO and one of the cash-hungry member banks of the Visa association benefiting from the stock sale, JPMorgan Chase made over $1 billion on the deal. In a turbulent stock market and an even rougher economy over the past several years, Visa’s new stock has fared well, all things considered. By late 2011, it was up around 30 percent from its IPO price. Archrival MasterCard’s stock did slightly better, and both companies were outpacing the overall stock market by a healthy margin. Visa’s growth in the coming years could be hampered by any protracted slowdown in consumer spending, because fewer purchases means fewer transactions for Visa to process. However, more transactions are shifting from cash to cards, mobile commerce is on the rise, and credit card use is only just beginning to ramp up in many areas around the world—and between its core processing business and recent acquisitions, Visa is positioned to benefit from all three trends.21

Question

1. How might Visa executives use scenario planning in the budgeting process?

2. Could Visa have accomplished its funding goals through short-term or long-term debt financing instead? Why or why not?

3. As Visa continues to explore growth opportunities, should it consider becoming a lender by issuing cards itself or lending money to banks that issue cards? Why or why not?

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The company you cofounded last year is growing rapidly and has strong prospects for an IPO in the next year or two. The additional capital that an IPO could raise would let you hire the brightest people in the industry and continue to innovate with new product research. There is one potential glitch: You and the rest of the executive team have been so focused on launching the business that you haven’t paid much attention to financial control. You’ve had plenty of funds from venture capitalists and early sales, so working capital hasn’t been a problem, but an experienced CEO in your industry recently told you that you’ll never have a successful IPO unless you clean up the financial side of the house. Your cofounders say they are too busy chasing great opportunities right now, and they want to wait until right before the IPO to hire a seasoned financial executive to put things in order. What should you do and why?

The company you cofounded last year is growing rapidly and has strong prospects for an IPO in the next year or two. The additional capital that an IPO could raise would let you hire the brightest people in the industry and continue to innovate with new product research. There is one potential glitch: You and the rest of the executive team have been so focused on launching the business that you haven’t paid much attention to financial control. You’ve had plenty of funds from venture capitalists and early sales, so working capital hasn’t been a problem, but an experienced CEO in your industry recently told you that you’ll never have a successful IPO unless you clean up the financial side of the house. Your cofounders say they are too busy chasing great opportunities right now, and they want to wait until right before the IPO to hire a seasoned financial executive to put things in order. What should you do and why?

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