Part 1
Edward Seymour is a financial consultant to Cornish Inc., a real estate syndicate. Cornish finances and develops commercial real estate (office buildings) projects. The completed projects are then sold as limited partnership interests to individual investors. The syndicate makes a profit on the sale of these partnership interests. Edward provides financial information for prospective investors in a document called the offering “prospectus.” This document discusses the financial and legal details of the limited partnership investment.
One of the company’s current projects is called JEDI 2, and has the syndicate borrowing money from a local bank to build a commercial office building. The interest rate on the loan is 6.5% for the first four years. After four years, the interest rate jumps to 15% for the remaining 20 years of the loan. The interest expense is one of the major costs of this project and significantly affects the number of renters needed for the project to break even. In the prospectus, Edward has prominently reported that the break-even occupancy for the first four years is 65%. This is the amount of office space that must be leased to cover the interest and general upkeep costs during the first four years. The 65% break-even point is very low compared to similar projects and thus communicates a low risk to potential investors. Edward uses the 65% break-even rate as a major marketing tool in selling the limited partnership interests. Buried in the fine print of the prospectus is additional information that would allow an astute investor to determine that the break-even occupancy jumps to 95% after the fourth year when the interest rate on the loan increases to 15%. Edward believes prospective investors are adequately informed of the investment’s risk.
- Is Edward behaving ethically? Explain your answer.
Part 2
The director of marketing for Starr Computer Co., Megan Hewitt, had the following discussion with the company controller, Cam Morley, on July 26 of the current year:
- Megan: Cam, it looks like I’m going to spend much less than indicated on my July budget.
- Cam: I’m glad to hear it.
- Megan: Well, I’m not so sure it’s good news. I’m concerned that the president will see that I’m under budget and reduce my budget in the future. The only reason that I look good is that we’ve delayed an advertising campaign. Once the campaign hits in September, I’m sure my actual expenditures will go up. You see, we are also having our sales convention in September. Having the advertising campaign and the convention at the same time is going to kill my September numbers.
- Cam: I don’t think that’s anything to worry about. We all expect some variation in actual spending month to month. What’s really important is staying within the budgeted targets for the year. Does that look as if it’s going to be a problem?
- Megan: I don’t think so, but just the same, I’d like to be on the safe side.
- Cam: What do you mean?
- Megan: Well, this is what I’d like to do. I want to pay the convention-related costs in advance this month. I’ll pay the hotel for room and convention space and purchase the airline tickets in advance. In this way, I can charge all these expenditures to July’s budget. This would cause my actual expenses to come close to budget for July. Moreover, when the big advertising campaign hits in September, I won’t have to worry about expenditures for the convention on my September budget as well. The convention costs will already be paid. Thus, my September expenses should be pretty close to budget.
- Cam: I can’t tell you when to make your convention purchases, but I’m not too sure that September items should be expensed in July’s budget.
- Megan: What’s the problem? It looks like “no harm, no foul” to me. I can’t see that there’s anything wrong with this—it’s just smart management.
- How should Cam Morley respond to Megan Hewitt’s request to expense the advanced payments for convention-related costs against July’s budget?
Part 3
Cost Behavior:
Research an article from Baker College Online Library on Cost Behavior and discuss how it relates to the costs of products and services related to your company you like to run.
(Baker college library # 23504107367546)
Part 4
Teams are common in nearly every type of organization today; thus, finding appropriate ways to include team performance in the performance management process is important. As the HR Manager, how would you ensure that team performance is being evaluated in a fair and effective manner?
Part 5
Throughout this course, you have learned various aspects of performance effectiveness; including team collaboration, as you worked with your classmates in the group project. Discuss the top three elements that you can apply directly to your work/life now.
Each part should be 250-300 words each