3 SCENARIO AND 4 FORUM REPLIES1. Fact Pattern: Joe loves explosives and begins his own demolition co

  

3 SCENARIO AND 4 FORUM REPLIES1. Fact Pattern: Joe loves explosives and begins his own demolition company, “Joe the Destroyer.” He doesn’t file any paperwork to begin his company because his friend told him that he didn’t need to file anything to start a sole proprietorship. Joe gets his first job and deposits the money into his personal checking account. He then proceeds to destroy the customer’s house, located at 1234 Serenity Lane. This is an unfortunate event, since the customer wanted the house located at 1200 Serenity Lane demolished.Question: Apply something that you learned in one of the assigned articles on the topic of contracts to the scenario. Cite your sources in APA format. Failing to cite your sources will result in no credit for the question2. Fact Pattern: Joe loves explosives and begins his own demolition company, “Joe the Destroyer.” He doesn’t file any paperwork to begin his company because his friend told him that he didn’t need to file anything to start a sole proprietorship. Joe gets his first job and deposits the money into his personal checking account. He then proceeds to destroy the customer’s house, located at 1234 Serenity Lane. This is an unfortunate event, since the customer wanted the house located at 1200 Serenity Lane demolished.Question: Apply something that you learned in one of the assigned articles on forms of business organizations to the scenario. Cite your sources in APA format. Failing to cite your sources will result in no credit for the question.3. Fact Pattern: Joe loves explosives and begins his own demolition company, “Joe the Destroyer.” He doesn’t file any paperwork to begin his company because his friend told him that he didn’t need to file anything to start a sole proprietorship. Joe gets his first job and deposits the money into his personal checking account. He then proceeds to destroy the customer’s house, located at 1234 Serenity Lane. This is an unfortunate event, since the customer wanted the house located at 1200 Serenity Lane demolished.Question: Apply something that you learned in one of the assigned articles on lawsuit basics to the scenario.Cite your sources in APA format. Failing to cite your sources will result in no credit for the question.
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FINANCE FORUM REPLY
Chelsea Bayles(Jul 15, 2019 9:32 AM)- Read by: 2
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Last Edited By Chelsea Bayles on Jul 15, 2019 9:53 AM
Hi Class!
From my understanding, operating leverage is when a firm’s operating costs are fixed, which means
that they do not fluctuate with how many sales the firm has. As the textbook explains, “the operating
leverage increases the sensitivity of the firm’s operating income to change in sales” (Keown). This
can also be correlated with EBIT, the more operating leverage a company has, it means they have
an EBIT with higher volatility. Whereas with financial leverage, is when a firm’s finances are sourced,
and those sources require a fixed rate of return (Keown). For example, a fixed interest rate debt
would be an example of this and its “whereby the firm must pay predetermined interest and principal
on specified dates” (Keown). For financial leverage, the changes of EBIT on earnings per share are
“magnified” by the different uses of financial leverage a firm may use. When a firm combines
operating and financial leverage, one of the biggest results is having the effect of big variations in
earnings per share. This happens because operating leverage has the effect of big changes in EBIT
from changes in sales revenue. Then the financial leverage a company uses causes changes in
EBIT which in turn causes bigger variations in EPS (Keown).
Apple Computer recently reinstated the payment of cash dividends, which had been suspended
since the 1990’s because for (1) I believe that because it had been so long since they had paid
dividends, it was time to give their shareholders some cash dividends after waiting so long. They
could more easily do this now too because they are much larger than they were back then. Back
then (1990) it made more sense because they reinvested their dividends to make the company more
profitable, but now they are doing great and have the money to pay their dividends out. Also, by
them paying dividends out, it allows their company to look trustworthy to their current investors, but it
may also influence more investors to invest in them as they can have more certainty that they will
eventually pay them. (2) Another reason that may have influenced the firm’s decision to begin paying
dividends out again is that by paying dividends, it shows that the company is performing well which
will in turn make the stock price rise which will actually give the company more funds in the long run.
Thanks,
Chelsea
Nam Le(Jul 15, 2019 9:13 AM)- Read by: 3
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Professor and Class,
Operating leverage results from operating costs that are fixed and do not vary with the level of firm
sales while financial leverage results from the firm’s use of sources of financing that require a fixed
rate of return. Operating leverage measures the effect of fixed operating costs, while financial
leverage measures the effect of interest expenses. The total risk exposure the firm assumes can be
managed by combining operating and financial leverage. Understanding the various leverage
measures will help determine the proper level of overall risk that should be accepted. Operating
leverage influences sales and earnings before interest and taxes (EBIT). Financial leverage affects
EBIT and earning per share (EPS). Operating Leverage arises due to the company’s cost
structure. The owners of common equity are exposed to financial risk if the firm uses debt or
preferred stock. The greater the firm’s use of financial leverage, the greater will be the ratio of the
percent change in earnings per share divided by the corresponding percent change in EBIT,
therefore, the company usage of financial leverage if the preferred stock is present in its capital
structure. Recognizing that firm operating earnings will be very subtle to changes in firm revenues,
therefore, management needs to be very cautious about using lots of financial leverage that carries
with its fixed principal and interest payments. A company with high operating leverage has a high
percentage of fixed costs to total costs, which means more units must be sold to cover costs. A
company with low operating leverage has a high percentage of variable costs to total costs, which
means fewer units must be sold to cover costs. In general, higher operating leverage leads to lower
profits. That is why firms’ managers have less control over the operating cost structure and more
control over their financial structure.
Some of the reasons Apple Computer (AAPL) recently reinstated the payment of cash dividends is
that high dividends increase stock values and show a company’s strength that indicates sign that
management has positive expectations for future earnings. When the actual dividend decision is
announced, the investor compares the actual decision with the expected decision. If the amount of
the dividend is as expected, even if it represents an increase from prior years, the market price of
the stock will remain unchanged. However, if the dividend is higher or lower than expected, investors
will reassess their perceptions of the firm. Therefore, investors like the steady income associated
with dividends, so they will be more likely to buy that company’s stock. It also reassures investor
that dividend payment is a sign of a company’s strength and that management has positive
expectations for future earnings. Greater demand for a company’s stock will increase its price.
Business forum reply
Adriana Fowler(Jul 17, 2019 3:47 PM)- Read by: 3
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The case that caught my attention involved a gentlemen named Henry F.K. Kersting. Through his
many years of employment, he had promoted fraudulent tax write off opportunities in order to gain
investors. The U.S. eventually assessed penalties against the companies that Kersting had been
director and principal stockholder of. He was found to be accountable for these penalties under
Alter-Ego doctrine. Per the appropriate state laws in this case, alter ego liability occurs when an
individual leading a corporation fails to follow lawful measures, keep acceptable records, assets and
negotiates business. The appeals court found that the district court appropriately ruled that alter ego
liability existed in this particular case. This meant that Mr. Kersting would be personally liable for all
financial consequences because he acted for himself through a corporation. It was also found that
he knowingly made false declarations regarding the tax penalties for investors, and that he was
basically making decisions for the company that were really decisions for himself.
Alter Ego is well-defined in our lesson as a company simply being a second version of the
shareholder, in which case the courts can find that shareholder personally responsible for any debts
or business obligations. In such a circumstance, the business is really a cover for the individual to
conduct personal transactions. This type of activity can produce confusion as to what assets belong
to an individual and what assets belong to the company. In order to avoid this, businesses should
keep accurate and complete records, and keep all assets clearly separated between any
shareholders and the company.
The idea of businesses moving their headquarters overseas to avoid income taxes is intricate. On
the one hand, there are financial views that fall in line with this type of movement because the entire
purpose of a business is to generate income for its’ stakeholders. It could be argued that businesses
have no social responsibility to support government spending, but they do have a responsibility to
earn profit for its’ shareholders. However, the income tax and jobs generated by a company can
contribute to the greater good of the economy, which can have an influence upon the success of the
company. From a financial viewpoint, I think most companies could be successful keeping their
headquarters in the U.S., but if money is the bottom line, moving overseas often has significant
savings. Ethically, I think that today society has higher expectations of businesses, and that
supporting the community is a way of supporting consumers who then support the business. It is an
interesting cycle, and I think that there are many opportunities that could be missed by businesses
who move their headquarters overseas for the sake of saving money.
Virginia Clause(Jul 16, 2019 1:19 PM)- Read by: 5
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Reply
A term that I have heard quite a few times is alter-ego. That seems to be a pretty simple
word to understand to me simply by breaking down what the two words mean that I already
know. Also, the translation from its original Latin meaning is second self. With this
understanding, that means that alter-ego for a business represents the business stands as
a second identity of its shareholders. This is not the goal of what a limited liability company
should be.
The case Kersting Vs. United States is the example I chose for alter-ego liability. Kersting
sued stating that his attorney-client privilege had been violated. The problem is that he was
providing tax shelters that allowed people to write off $12 for every $1 of expenses. Kersting
was very aware of what was taking place and even wrote a letter to one participant that
stated he didn’t want the letter getting into the wrong hands. However, because Kersting
kept ‘incomplete and unreliable records’ made it for an easy case and were able to find alter
ego liability using Hawaii and Nevada law.
As far as moving corporate headquarters overseas to avoid paying income tax, I think that
the statement alone throws up red flags. That is definitely not ethical. The main reason
anyone would want to move their headquarters would be to avoid taxes as stated, so I
believe that is proof enough to say that the duty of corporations to pay taxes to the
government is higher than the duty to pay dividends to the shareholders. Having experience
with dividends in the credit union world, I feel that dividends are always minimal compared
to taxes. The IRAs that I work with are usually a 10% tax withheld for government compared
to the minimal 2.7% or so that is earned in dividends on the same money.
Dorrell, D. (2005). Alter Ego Analysis to Find Hidden Assets. American Journal of Family
Law, 18(4), 213–233. Retrieved
from http://search.proquest.com/docview/275095811/
Findlaw. (2019). FindLaw’s United States Ninth Circuit case and opinions.. [online] Available at:
https://caselaw.findlaw.com/us-9th-circuit/1438394.html [Accessed 16 Jul. 2019].
Maffei, S. (2011). Personal liability of corporate shareholders in New York.Review Of
Business, 31(2), 110-114. Retrieved
from http://search.ebscohost.com.ezproxy1.apus.edu/login.aspx?direct=true&db=bth&AN=6
6249887&site=ehost-live.

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