Nancy k. kubasekm. neil brownebartley a. b

NANCY K.
KUBASEK
M. NEIL
BROWNE
BARTLEY A.
BRENNAN
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Library of Congress Cataloging-in-Publication Data
Kubasek, Nancy K., author.
The legal environment of business : a critical thinking
approach / Nancy K. Kubasek,
Bartley A. Brennan, M. Neil Browne. — Eight edition.
pages cm
ISBN 978-0-13-407403-0 (alk. paper)
1. Industrial laws and legislation—United States. 2. Trade
regulation—United States.
3. Commercial law—United States. 4. Critical thinking. I.
Brennan, Bartley A., author.
II. Browne, M. Neil, author. III. Title.
KF1600.K83 2015a

346.7307—dc23
2015036209
10 9 8 7 6 5 4 3 2 1
ISBN 10: 0-13-407403-3
ISBN 13: 978-0-13-407403-0
http://www.pearsoned.com/permissions/
To the numerous students who appreciate the importance of
developing their critical thinking skills for their personal
growth
and development.
NANCY K. KUBASEK AND M. NEIL BROWNE
To Sandra for everything.
BARTLEY A. BRENNAN
iv
Brief Contents
P A R T O N E
Introduction to the Law and the Legal Environment

of Business 1
1 Critical Thinking and Legal Reasoning 2
2 Introduction to Law and the Legal Environment of Business
17
3 The American Legal System 35
4 Alternative Tools of Dispute Resolution 76
5 Constitutional Principles 105
6 White-Collar Crime and the Business Community 145
7 Ethics, Social Responsibility, and the Business Manager 188
8 The International Legal Environment of Business 213
P A R T T W O
Private Law and the Legal Environment of Business 249
9 The Law of Contracts and Sales—I 250
10 The Law of Contracts and Sales—II 279
11 The Law of Torts 299
12 Product and Service Liability Law 332
13 Law of Property: Real and Personal 360
14 Intellectual Property 385
15 Agency Law 408

16 Law and Business Associations—I 432
17 Law and Business Associations—II 453
P A R T T H R E E
Public Law and the Legal Environment of Business 481
18 The Law of Administrative Agencies 482
19 The Employment Relationship and Immigration Laws 503
20 Laws Governing Labor–Management Relations 538
21 Employment Discrimination 569
22 Environmental Law 617
23 Rules Governing the Issuance and Trading of Securities 647
24 Antitrust Laws 699
25 Laws of Debtor–Creditor Relations and Consumer
Protection 741
APPENDIX A The Constitution of the United States 788
GLOSSARY 794
INDEX 808
v

Contents
v
PREFACE xvii
ACKNOWLEDGMENTS xxi
ABOUT THE AUTHORS xxiii
P A R T O N E
Introduction to the Law and the
Legal Environment of Business 1
1 Critical Thinking and Legal
Reasoning 2
The Importance of Critical Thinking 2
A Critical Thinking Model 4
United States of America v. Martha Stewart
and Peter Bacanovic 5
The Critical Thinking Steps 7
Facts 7
Issue 7
Reasons and Conclusion 7
Rules of Law 8
Ambiguity 8
Ethical Norms 9
Analogies 10
Missing Information 10
Using Critical Thinking to Make Legal
Reasoning Come Alive 11

Legal Reasoning 11
Applying the Critical Thinking
Approach 15
Assignment on the Internet 16
On the Internet 16
For Future Reading 16
2 Introduction to Law and the Legal
Environment of Business 17
Definition of the Legal Environment of
Business 18
Definition of Law and Jurisprudence 19
Natural Law School 20
Positivist School 21
Sociological School 21
American Realist School 22
Critical Legal Studies School 22
Feminist School 22
Law and Economics School 23
Sources of Law 23
The Legislature as a Source of Statutory
Law 23
The Judicial Branch as a Source of Case
Law 25
The Executive Branch as a Source of
Law 27
Administrative Agencies as a Source of
Law 27

Classifications of Law 27
Criminal Law and Civil Law 28
Public and Private Law 28
Substantive and Procedural Law 29
Cyberlaw 29
Global Dimensions of the Legal
Summary 30
Review Questions 30
Review Problems 31
Case Problems 31
Thinking Critically about Relevant Legal
Issues 33
On the Internet 34
3 The American Legal System 35
Jurisdiction 35
Original versus Appellate
Jurisdiction 35
Jurisdiction over Persons and
Property 36
World-Wide Volkswagen Corp. v. Woodson,

District Judge of Cook County 37
Subject Matter Jurisdiction 40
Hertz Corporation v. Friend 41
Venue 44
The Structure of the Court System 46
The Federal Court System 46
State Court Systems 46
The Actors in the Legal System and
Their Relationship to the Business
Community 49
The Attorney 49
The Jury 52
The Adversary Process 52
Criticisms of the Adversary System 53
Steps in Civil Litigation and the Role of
Businesspersons 53
The Pretrial Stage 53
The Trial 59
J.E.B. v. Alabama, ex rel. T.B. 60
Appellate Procedure 64
Class Actions 66

Wal-Mart Stores Inc. v. Dukes 67
Global Dimensions of the American Legal
System 69
Summary 71
Review Questions 71
Review Problems 71
Case Problems 72
Issues 73
On the Internet 74
4 Alternative Tools of Dispute
Resolution 76
Negotiation and Settlement 78
Mediation 78
Selection of a Mediator 78
Common Uses of Mediation 79
Advantages of Mediation 79
Criticisms of Mediation 80
Arbitration 80
Hall Street Associates, L.L.C. v. Mattel, Inc. 82
Methods of Securing Arbitration 83

Ignazio v. Clear Channel Broadcasting, Inc.
et al. 84
American Express Co. vs. Italian Colors
Restaurant 89
Selection of an Arbitrator 91
Common Uses of Arbitration 92
Problems with Arbitration 92
Minitrials 93
Early Neutral Case Evaluation 94
Private Trials 95
Summary Jury Trials 95
Court-Annexed Alternative Dispute
Resolution 95
Use of Court-Annexed ADR in the State
and Federal Systems 95
Differences between Court-Annexed and
Voluntary ADR 97
The Future of Alternative Dispute
Resolution 98
Global Dimensions of Alternative Dispute
Resolution 98
Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth 99

Summary 100
Review Questions 100
Review Problems 100
Case Problems 101
Issues 102
On the Internet 103
5 Constitutional Principles 105
The Constitution 105
Federalism 105
Supremacy Clause 106
Federal Preemption 106
Separation of Powers 107
William Jefferson Clinton v. Paula Corbin
Jones 107
The Impact of the Commerce Clause on
Business 110
The Commerce Clause as a Source of
Federal Authority 110
Gonzales v. Raich 112

The Commerce Clause as a Restriction
on State Authority 116
Nat’l Ass’n of Optometrists & Opticians v.
Brown 116
The Taxing and Spending Powers of the
Federal Government 119
Taxation of the Internet? 120
The Impact of the Amendments on
Business 121
The First Amendment 121
Central Hudson Gas & Electric Corp. v.
Public Service Commission of New
York 123
The Fourth Amendment 128
Florida v. Jardines 129
The Fifth Amendment 132
United States v. Windsor 134
The Fourteenth Amendment 139
Summary 140
Review Problems 140
vi C O N T E N T S

C O N T E N T S vii
Case Problems 141
Issues 143
On the Internet 144
6 White-Collar Crime and the
Business Community 145
Crime and Criminal Procedure 148
Crime 148
Criminal Procedure 149
Distinguishing Features of White-Collar
Crime 154
The Corporation as a Criminal 154
Arguments in Support of Corporate
Liability 155
Arguments in Opposition to Corporate
Liability 156
Imposition of Liability on Corporate
Executives 157
United States v. Park 157

Imposition of Liability on Lower-Level
Corporate Criminals 160
Factors Encouraging the Commission of
White-Collar Crime 160
Sentencing of White-Collar
Criminals 162
Common White-Collar Crimes 164
Sekhar v. United States 164
Bribery 165
Violations of Federal Regulations 166
Criminal Fraud 167
United States v. Gray 167
Larceny 169
Embezzlement 170
Computer Crimes 170
Prevention of White-Collar Crime 173
Federal Laws Used in the Fight against
White-Collar Crime 175
The Racketeer Influenced and Corrupt
Organizations Act (RICO) 175
False Claims Act 177
Sarbanes-Oxley Act 178
Whistleblower Protection Act 179
State Laws Used in the Fight against White-
Collar Crime 180
Global Dimensions of White-Collar
Crime 181

Summary 182
Review Problems 182
Case Problems 183
Issues 186
On the Internet 187
7 Ethics, Social Responsibility, and
the Business Manager 188
Definition of Business Ethics and the Social
Responsibility of Business 190
Business Ethics 190
The Social Responsibility of
Business 191
In re Exxon Valdez 191
Theories of Ethical Thought 193
Consequential Theories 193
Deontological Theories 194
Humanist Theories 195
Codes of Ethics 195
Individual Codes of Ethics 195
Corporate Codes of Ethics 197

Industry Codes of Ethics 198
Professional Codes of Ethics 198
Schools of Social Responsibility 201
Profit-Oriented School 201
Managerial School 204
Institutional School 204
Cooper Industries v. Leatherman Tool
Group, Inc. 205
Professional Obligation School 205
Regulation School 206
Johnson Construction Co. v. Shaffer 206
Global Dimensions of Ethics and Social
Responsibility 207
Code of Conduct for Transnational
Corporations 207
Summary 207
Review Problems 208
Case Problems 209
Issues 210
On the Internet 211

8 The International Legal
Dimensions of the International
Political Dimensions 214
Economic Dimensions 215
Cultural Dimensions 215
Corruption and Trade 216
United States v. Kay 216
Legal Dimensions 219
Selected National Legal Systems 221
Crosby v. National Foreign Trade Council 222
Methods of Engaging in International
Business 223
Trade 223
International Licensing and
Franchising 224
Russian Entertainment Wholesale, Inc. v.
Close-Up International, Inc. 225
Foreign Direct Investment 226
In re Union Carbide Corp. Gas Plant Disaster

v. Union Carbide Corp. 227
Risks of Engaging in International
Business 229
Expropriation of Private Property 229
Sovereign Immunity Doctrine 230
Keller v. Central Bank of Nigeria 230
Act-of-State Doctrine 231
Linde v. Arab Bank, PLC 231
Export and Import Controls 232
Legal and Economic Integration as a Means
of Encouraging International Business
Activity 233
The World Trade Organization 233
The European Union 236
North American Free Trade
Agreement 240
Global Dispute Resolution 242
Arbitration 243
Litigation 243
Globalization: Hurts or Helps 243
Summary 244
Review Problems 245
Case Problems 245

Issues 246
On the Internet 247
P A R T T W O
Private Law and the Legal
9 The Law of Contracts and
Sales—I 250
Definition, Sources, and Classifications of
Contract Law 251
Definition 251
Sources of Contract Law 251
Paramount Contracting Co. v. DPS
Industries, Inc. 252
Classifications of Contracts 253
Pan Handle Realty, LLC v. Olins 254
Audito v. City of Providence 255
Elements of a Legal Contract 257
Legal Offer 257
Beer v. Chase 258

Legal Acceptance 260
The Private Movie Company, Inc. v. Pamela
Lee Anderson et al. 260
Consideration 263
Genuine Assent 264
Stambovsky v. Ackley and Ellis Realty 265
Competent Parties 267
Legal Object 269
Brown & Brown, Inc. v. Johnson 270
Contracts That Must Be in Writing 271
Contracts for the Sale of an Interest in
Land 271
Contracts to Pay the Debts of Another 271
Contracts Not Performable in One
Year 271
Sale of Goods of $500 or More 272
Iacono v. Lyons 272
Nonbusiness Contracts 273
Parol Evidence Rule 273
Third-Party Beneficiary Contracts and
Assignment of Rights 274
Types of Third-Party Beneficiary
Contracts 274
Assignment of Rights 274
Summary 275

Review Problems 276
Case Problems 277
Issues 278
On the Internet 278
viii C O N T E N T S
10 The Law of Contracts and
Sales—II 279
Methods of Discharging a Contract 280
Discharge by Performance 280
Kohel v. Bergen Auto Enterprises, L.L.C. 280
Performance to Satisfaction of Another 281
Material Breach of Contract 281
Discharge by Mutual Agreement 282
Discharge by Conditions Precedent and
Subsequent 282
Architectural Systems, Inc. v. Gilbane
Building Co. 283

Discharge by Impossibility of
Performance 283
Discharge by Commercial
Impracticability 284
Contracts with the Government and the
Sovereign Acts Doctrine 284
Facto v. Pantagis 285
Remedies for a Breach of Contract 286
Monetary Damages (“Legal”
Remedies) 286
Hallmark Cards, Inc. v. Murley 287
Arrowhead School District No. 75, Park
County, Montana v. James A. Klyap, Jr. 288
Equitable Remedies 289
Remedies for Breach of a Sales Contract
(Goods) 290
Fitl v. Strek 290
E-Contracts 291
E-Signatures 292
The Uniform Computer Information
Transaction Act 292
Global Dimensions of Contract and Sales
Law 293
Summary 294

Review Problems 295
Case Problems 296
Issues 297
On the Internet 297
11 The Law of Torts 299
The Goals of Tort Law 299
Damages Available in Tort Cases 300
Compensatory Damages 300
Nominal Damages 301
Punitive Damages 301
Young v. Becker & Poliakoff 303
Classifications of Torts 307
Intentional Torts 307
Intentional Torts against Persons 307
Nemet Chevrolet, Ltd. v. Consumeraffairs
.com, Inc. 310
Intentional Torts against Property 317
Intentional Torts against Economic
Interests 318
Negligent Torts 319

Elements of Negligence 319
Defenses to Negligence 322
Coomer v. Kansas City Royals 323
Venkateswarlu Thota and North Texas
Cardiology Center v. Margaret
Young 324
Strict Liability Torts 326
Global Dimensions of Tort Law 326
Summary 327
Review Problems 328
Case Problems 328
Issues 330
On the Internet 331
12 Product and Service Liability
Law 332
Theories of Recovery in Product Liability
Cases 333
Negligence 333

Mutual Pharmaceutical Company, Inc. v.
Bartlett 340
Strict Liability in Contract for Breach of
Warranty 341
Williams v. Braum Ice Cream Store, Inc. 343
Strict Liability in Tort 346
Welge v. Planters Lifesavers Co. 347
Liability to Bystanders 351
Market Share Liability 351
Service Liability 352
Accountants’ Liability 353
Global Dimensions of Product Liability
Law 353
Summary 355
Review Problems 356
Case Problems 356
C O N T E N T S ix

Issues 357
On the Internet 358
13 Law of Property: Real and
Personal 360
Real Property 361
Definition of Real Property 362
Extent of Ownership 362
Interests in Real Property 362
Fee Simple Absolute 362
Conditional Estate 362
Life Estate 363
Future Interest 363
Leasehold Estates 364
Easements 364
License 364
Co-Ownership 364
Condominiums and Cooperatives 365
Plum Creek C.A. v. Oleg Borman 365
Voluntary Transfer of Real Property 368
Execution 368
Delivery 370
Acceptance 370
Recording 370
Involuntary Transfer of Real Property 370
Adverse Possession 370

Condemnation 371
Susette Kelo et al. Petitioners, v. City of New
London, Connecticut et al. 372
Restrictions on Land Use 374
Restrictive Covenants 374
Zoning 374
Emine Bayram v. City of Binghamton
and City of Binghamton Zoning Board of
Appeals 375
Other Statutory Restrictions on Land
Use 377
Personal Property 378
Voluntary Transfer of Personal
Property 378
Involuntary Transfers of Personal
Property 378
Bailments 379
Global Dimensions of Property
Law 379
Summary 380
Review Problems 381
Case Problems 381
Issues 382

On the Internet 383
14 Intellectual Property 385
Introduction to Intellectual Property 385
Trademarks 385
Toys “R” Us, Inc. v. Canarsie Kiddie Shop,
Inc. 386
Trade Dress 389
Federal Trademark Dilution Act of
1995 391
Victor Moseley and Cathy Moseley et al.,
dba Victor’s Little Secret v. V Secret
Catalogue, Inc. et al. 391
Patents 393
Bilski v. Kappos 393
Trade Secrets 396
Economic Espionage Act 397
Copyrights 397
Fair Use Doctrine 398
Copyrights in the Digital Age 398
American Broadcasting Company, Inc.
et. al. v. Aereo, Inc. 399

RealNetworks, Inc. v. DVD Control Copy
Association, Inc. et al. 402
Global Dimensions of Intellectual Property
Law 402
Summary 403
Review Problems 404
Case Problems 404
Issues 406
On the Internet 407
15 Agency Law 408
Definition and Types of Agency
Relationships 409
Definition of Agency 409
Types of Agency Relationships 409
Coker v. Pershad 411
Creation of an Agency Relationship 412
Expressed Agency or Agency by
Agreement 413

Agency by Implied Authority 413
x C O N T E N T S
Penthouse International v. Barnes 414
Agency through Ratification by
Principal 415
Agency by Estoppel or Apparent
Authority 415
Motorsport Marketing, Inc. v. Wiedmaier,
Inc. 416
Duties of Agents and Principals 416
Principal’s Duties to Agent 416
Agent’s Duties to Principal 417
Cousins v. Realty Ventures, Inc. 417
Gossels v. Fleet National Bank 419
Principal’s and Agent’s Liability to Third
Parties 420
Contractual Liability 420
McBride v. Taxman Corp. 421
E-Commerce: Intelligent Agents 421
Liability of Disclosed, Partially Disclosed
and Undisclosed Principals 422
Liability of Undisclosed Principal 422
Tort Liability 422

Tort Liability and Negligence 423
Auer v. Paliath 423
Criminal Liability 424
Termination of the Principal–Agent
Relationship 424
Termination by Agreement 424
Termination by Operation of Law 425
Gaddy v. Douglass 425
Global Dimensions of Agency Law 426
Japan 427
European Union 427
U.S. Agents Abroad 427
Summary 428
Review Problems 428
Case Problems 429
Issues 430
On the Internet 431
16 Law and Business

Associations—I 432
Factors Influencing a Business Manager’s
Choice of Organizational Form 434
Some Common Forms of Business
Organization in the United States 434
Sole Proprietorships 434
Quality Car & Truck Leasing, Inc. v.
Sark 435
General Partnerships 436
In re KeyTronics 438
Enea v. Superior Court of Monterey
County 439
Limited Partnerships and Limited
Liability Limited Partnerships 443
Specialized Forms of Business
Associations 444
Joint Stock Company 444
Syndicate 445
Joint Venture 445
Franchising 445
Holiday Inn Franchising, Inc. v. Hotel
Associates, Inc. 446
Global Dimensions of Business
Associations 447

Outsourcing 448
Summary 449
Review Problems 449
Case Problems 450
Issues 451
On the Internet 452
17 Law and Business Associations—
II 453
The Corporation 453
Classification of Corporations 454
Closely Held Corporation 454
Publicly Held Corporation 455
Multinational or Transnational
Corporation 455
Subchapter S Corporation 455
ROBS Corporation 455
Professional Corporation 455
Nonprofit Corporation 456
Creation of Corporations 456
Brennan’s Inc. v. Colbert 457

Financing of Corporations 458
Debt Financing 458
Equity Financing 459
Consideration 461
Operation of Corporations 462
The Role of the Shareholders 462
The Role of the Board of Directors 464
C O N T E N T S xi
In re Abbott Laboratories Derivative
Shareholders Litigation 465
The Role of the Officers and
Managers 466
Fiduciary Obligations of Directors,
Officers, and Managers 466
Beam v. Stewart 467
Smith v. Van Gorkom 469
Limited Liability Companies 473
The Uniform Limited Liability Act 473
LLC Characteristics 473
Creating a Limited Liability
Company 473
Duration of the LLC 474
Financing of the LLC 474
Control Considerations 474

Tax Ramifications 474
Gatz Properties, LLC v. Auriga Capital
Corporation 474
Global Dimensions of Corporations: A “Big Fat
Greek” Bailout II and III 476
Summary 476
Review Problems 477
Case Problems 478
Issues 478
On the Internet 479
P A R T T H R E E
Public Law and the Legal
18 The Law of Administrative
Agencies 482
Introduction to Administrative Law and
Administrative Agencies 483
Administrative Law 483

Administrative Agencies 484
Creation of Administrative Agencies 485
Functions of Administrative Agencies 486
Rulemaking 486
City of Arlington v. Federal Communications
Commission 488
Adjudication 489
Fox Television Stations, Inc. v. Federal
Communications Commission 493
Administrative Activities 494
Limitations on Administrative Agencies’
Powers 494
Statutory Limitations 494
Institutional Limitations 494
State and Local Administrative
Agencies 496
Vonage Holdings Corp. v. Minnesota Public
Utilities Commission 497
Global Dimensions of Administrative
Agencies 498
Summary 498

Review Problems 498
Case Problems 499
Issues 501
On the Internet 501
19 The Employment Relationship and
Immigration Laws 503
Wage and Hour Laws 504
Unemployment Compensation 506
Cassandra Jenkins v. American Express
Financial Corp. 509
Consolidated Omnibus Budget
Reconciliation Act of 1985 510
Workers’ Compensation Laws 510
Coverage 510
Recoverable Benefits 512
The Claims Process 12
Benefits of the Workers’ Compensation
System 512
The Family and Medical Leave Act of
1993 513
Major Provisions 513

Jeffrey Bonkowski v. Oberg Industries,
Inc. 514
Remedies for Violations of the
FMLA 516
The Future of the FMLA 517
The Occupational Safety and Health Act of
1970 518
Occupational Safety and Health
Administration 518
Occupational Safety and Health Review
Commission 521
National Institute for Occupational
Safety and Health 521
Implementation of the OSH Act 523
xii C O N T E N T S
Employee Privacy Rights 523
Electronic Monitoring and
Communication 523
Brian Pietrylo and Doreen Marino,
Plaintiffs v. Hillstone Restaurant Group
d/b/a Houston’s, Defendant 524
Drug Testing 527
Other Testing 528

Immigration Law 529
Immigration Reform and Control Act of
1986 529
Authorized Noncitizen Workers 530
Global Dimensions of the Employment
Relationship 532
Summary 533
Review Problems 533
Case Problems 534
Issues 535
On the Internet 536
20 Laws Governing Labor–
Management Relations 538
Structure of the Primary U.S. Labor
Legislation and the Mechanisms for Its
Enforcement 540
The Wagner Act of 1935 540
The Taft–Hartley Act of 1947 541
The Landrum–Griffin Act of 1959 542
The National Labor Relations
Board 542

Labor Organizing 548
Board Rules 548
Unfair Labor Practices by
Employers 549
Gaetano & Associates, Inc. v. National Labor
Relations Board 553
Unfair Labor Practices by Employees 554
Laborers’ International Union of North
America, Local 872, AFL–CIO, and
Stephanie Shelby 554
Organizing the Appropriate Unit 556
Specialty Healthcare and Rehabilitation
Center of Mobile and United Steelworkers,
District 9, Petitioner 557
The Collective Bargaining Process 559
Subjects of Bargaining 560
Strikes, Boycotts, and Picketing 560
Strikes 561
Boycotts 563
Picketing 563
Global Dimensions of Labor–Management
Relations 564
Summary 564

Review Problems 565
Case Problems 565
Issues 567
On the Internet 568
21 Employment Discrimination 569
The Employment-at-Will Doctrine 570
Constitutional Provisions 572
The Civil Rights Acts of 1866 and 1871 572
Applicability of the Acts 572
The Equal Pay Act of 1963 573
Equal Work 574
Defenses 574
Remedies 575
The Civil Rights Act of 1964, as Amended (Title
VII), and the Civil Rights Act of 1991 575
Applicability of the Act 575
Proof in Employment Discrimination
Cases 576
Teresa Harris v. Forklift Systems, Inc. 580

Vance v. Ball State University 583
Retaliation 583
Reya C. Boyer-Liberto v. Fontainbleu
Corporation 584
Statutory Defenses 586
Protected Classes 588
Enforcement Procedures 592
Remedies 595
Lilly Ledbetter Fair Pay Act of 2009 595
The Age Discrimination in Employment Act
of 1967 596
Applicability of the Statute 597
Proving Age Discrimination 597
Jones v. National American University 598
Statutory Defenses 599
Remedies under ADEA 601
The Rehabilitation Act of 1973 601
The Americans with Disabilities Act of
1991 602
Covered Individuals 602
C O N T E N T S xiii

McMillan v. City of New York 604
Remedies 606
Affirmative Action 606
Global Dimensions of Employment
Discrimination Legislation 610
Summary 611
Review Problems 612
Case Problems 613
Issues 615
On the Internet 616
22 Environmental Law 617
Alternative Approaches to Environmental
Protection 618
Tort Law 618
Boomer et al. v. Atlantic Cement Co. 618
Government Subsidies Approach 620
Emission Charges Approach 620
Marketable Discharge Permits

Approach 620
Direct Regulation Approach 621
…
BUSI 342
ASSIGNMENT #1, SPRING 2021
Please carefully note the following important points:
• This assignment is to be completed in teams of 4.
• Your team submission should be made in a single Excel file,
titled
“firstname_lastname_firstname_lastname”, etc.
• Be sure to label your work generously to save me time in
finding things.
• Tax rates are found by dividing “provision for income taxes”
by “income
before taxes”. Usually the latest year’s numbers are used for
this calculation,
but if the year looks unusual, look at previous years as well and
use a rate that
seems reasonable.
• Where a company’s statements are missing a year, simply
leave that company
out of the analysis for the year.
• Please submit on Moodle.
PART 1
Please carry out an external size-up for the U.S. economy and

the U.S. home-building
industry. It is not necessary to present your findings in a
lengthy write-up - bullet
points will suffice, but please provide more than just raw
numbers without
explanations/interpretation.
PART 2
Your task in this part of the assignment is to provide an
internal, quantitative analysis
of the U.S. homebuilder Toll Bros. to assess its health and
performance.
The other companies for which financial statements have been
provided in the Excel
file operate in the same industry as Toll Bros. They are there to
allow you to provide
some context to Toll Bros. performance and to make
comparisons
Ignore TTM (Trailing Twelve Months) data.
In addition to the usual work included in an internal,
quantitative analysis, please also
include:
1) A decomposition of ROE, along with your interpretation of
the results
2) An analysis of Toll Brothers’ cash conversion cycle (also
known as “operating
cash flow cycle”)
Throughout all of the analysis above, it is important to provide
not only

numbers/ratios, but also interpretation. This should be done
across time and across the
industry (for simplicity, consider the three companies you have
data for “the
industry”). Here, again, it is not necessary to write very much –
the key is to put the
results in context.
Toll Bros.TOLL BROTHERS INC (TOL) CashFlowFlag
INCOME STATEMENTTOLL BROTHERS INC (TOL)
CashFlowFlag BALANCE SHEETTOLL BROTHERS INC
(TOL) Statement of CASH FLOWFiscal year ends in October.
USD in millions except per share data.Dec-16Dec-17Dec-
18Dec-19Dec-20TTMFiscal year ends in October. USD in
millions except per share data.Dec-16Dec-17Dec-18Dec-19Dec-
20Fiscal year ends in October. USD in millions except per share
data.Dec-16Dec-17Dec-18Dec-19Dec-
20TTMRevenue391241715170581571437143AssetsCash Flows
From Operating ActivitiesCost of
revenue308232694144456256735673Current assetsNet
income340363382535748748Gross
profit8309021025125314701470CashDepreciation &
amortization232423252525Operating expensesCash and cash
equivalents5869196347131182Investment/asset impairment
charges213614153535Sales, General and
administrative433455535608684684Short-term
investments121012Investments losses (gains)-16-13-8-5-2-
2Total operating expenses433455535608684684Total
cash5989296457131182Deferred income taxes364920186-22-
22Operating
income397447490645786786Receivables252284166154126Stoc
k based compensation222327282828Interest
Expense1Inventories64906998735472817598Change in working
capital-107-418-279161-215-215Other income
(expense)1088999169148148Prepaid expenses262323Accounts

receivable-5-56-30732-85-85Income before
taxes505536589814934934Other current
assets120140660501572Inventory-272-352-391130-144-
144Provision for income taxes165172207279186186Total
current assets74618351885086729502Accounts
payable8229525-1405858Net income from continuing
operations340363382535748748Non-current assetsIncome taxes
payable52-666-24-4-4Net income340363382535748748Property,
plant and equipmentOther working capital3627-112164-40-
40Net income available to common
shareholders340363382535748748Net property, plant and
equipment143137170190193Other non-cash items-5-4-
291444Earnings per shareEquity and other
investments451413496482432Net cash provided by operating
activities31360149960602602Basic1.912.062.273.34.924.92Def
erred income taxes250198167Cash Flows From Investing
ActivitiesDiluted1.841.972.183.174.854.85Other long-term
assets11210853102118Investments in property, plant, and
equipment-15-9-28-29-28-28Weighted average shares
outstandingTotal non-current
assets956856886773743Acquisitions, net-1528-84-22-
10106106Basic178176168162152152Total
assets841792079737944510245Sales/Maturities of
investments4021018Diluted186185176169154154Liabilities and
stockholders' equityOther investing
activities5139481344EBITDA528470513670811 811LiabilitiesN
et cash used for investing activities-1452-538-88181Current
liabilitiesCash Flows From Financing ActivitiesAccounts
payable225237282275362Debt
issued282923042443207730313031Taxes
payable12659635831Debt repayment-2035-1959-2498-2687-
2690-2690Accrued liabilities463483891767772Common stock
issued220Deferred revenues434342Common stock repurchased-
91-57-393-291-503-503Other current
liabilities119125138149159Excess tax benefit from stock based
compensation8225Total current

liabilities933904141712921367Dividend paid-39-62-62Non-
current liabilitiesOther financing activities21362621010Long-
term debt34003790377532203698Net cash provided by (used
for) financing activities952325-442-873-214-214Deferred
revenues224284309396411Net change in cash-187333-
28579469469Minority interest66669Cash at beginning of
period773586919634713713Total non-current
liabilities36304080409036224118Cash at end of
period58691963471311821182Total
liabilities45634984550749145484Free Cash FlowStockholders'
equityOperating cash flow31360149960602602Common
stock22222Capital expenditure-15-9-28-29-28-28Additional
paid-in capital712728728720727Free cash
flow29851120931574574Retained
earnings32323595397744745162Treasury stock-89-100-475-
663-1131Accumulated other comprehensive income-3-3-3-
21Total stockholders' equity38544223422945314760Total
liabilities and stockholders' equity841792079737944510245
LennarLENNAR CORP (LEN) CashFlowFlag INCOME
STATEMENTLENNAR CORP (LEN) CashFlowFlag
BALANCE SHEETLENNAR CORP (LEN) Statement of CASH
FLOWFiscal year ends in November. USD in millions except
per share data.Dec-16Dec-17Dec-18Dec-19Dec-20TTMFiscal
year ends in November. USD in millions except per share
data.Dec-16Dec-17Dec-18Dec-19Dec-20Fiscal year ends in
November. USD in millions except per share data.Dec-16Dec-
17Dec-18Dec-19Dec-
20TTMRevenue7780947410950126462057220572AssetsCash
Flows From Operating ActivitiesCost of
income62981991377217181718Gross
amortization394450669191Operating expensesCash and cash

investments4354574Investments losses (gains)-37-36-21-5-300-
300Restructuring, merger and acquisition153153Total
cash12821201138327081563Deferred income taxes75-
69791268268Other operating expenses-153-
153Receivables198197331129189Stock based
compensation414456617373Total operating
expenses177216233286344344Inventories774287469179108611
7069Change in working capital-1583-1314-685-187-169-
169Operating income92210861262133919901990Other current
assets12471643166016102104Accounts receivable-113-86-
261253-431-431Interest Expense37125Total current
assets1047011787125531530820925Inventory-1367-1127-504-
661-136-136Other income (expense)8413673-149272272Non-
current assetsAccounts payable32622621357413413Income
before taxes97012101330119022632263Property, plant and
equipmentOther working capital-428-32658-136-15-15Provision
for income taxes341390417418545545Gross property, plant and
equipment247195261319459Other non-cash items-42-274185-
57-57Net income from continuing
operations62981991377217181718Accumulated Depreciation-
88-78-87-104-139Net cash provided by operating activities-788-
42050899717121712Other10-16-139-22-22Net property, plant
and equipment159116174215320Cash Flows From Investing
ActivitiesNet income63980391281016961696Equity and other
investments10101314151918502095Investments in property,
plant, and equipment-23-91-76-112-130-130Preferred
dividend89981515Goodwill3939401963680Property, plant, and
equipment reductions447425603939Net income available to
common shareholders63179490380316811681Other long-term
assets12811164107611751547Acquisitions, net-165-315-426-
1041-1284-1284Earnings per shareTotal non-current
assets24892633280934377642Purchases of investments-78-189-
137-273-82-82Basic3.063.794.053.385.465.46Total
assets1295814420153621874528566Sales/Maturities of
investments101312545439439Diluted2.753.393.853.385.44 5.44
Liabilities and stockholders' equityOther investing

activities559393503451410410Weighted average shares
outstandingLiabilitiesNet cash used for investing activities438-
98-86-870-608-608Basic206209223237308308Current
liabilitiesCash Flows From Financing
ActivitiesDiluted233235235237309309Accounts
payable4615395977551325Debt
issued147316156442581351351EBITDA1045126613851405208
12081Other current liabilities4955110381176Debt repayment-
626-817-500-1423-2052-2052Total current
liabilities51059470711351501Commo n stock
issued14919133Non-current liabilitiesCommon stock
repurchased-20-23-20-27-300-300Long-term
debt601866556276797310117Excess tax benefit from stock
based compensation7072Minority
interest424301186114101Dividend paid-33-33-35-38-49-
49Other long-term liabilities11801220116816512265Other
financing activities-154-356-36698-149-149Total non-current
liabilities762181767629973712484Net cash provided by (used
for) financing activities661395-2511194-2196-2196Total
liabilities8131877183361087313985Net change in cash311-
1231711321-1092-1092Stockholders' equityCash at beginning
of period97112821158133026512651Common
stock2121242433Cash at end of
period128211581330265115581558Additional paid-in
capital22402306280531428497Free Cash FlowRetained
earnings26603430430648416488Operating cash flow-788-
42050899717121712Treasury stock-93-108-109-136-436Capital
expenditure-23-91-76-112-130-130Accumulated other
comprehensive income0010Free cash flow-811-
51143188515811581Total stockholders'
equity482756497026787214582Total liabilities and
stockholders' equity1295814420153621874528566
Pulte GroupPULTEGROUP INC (PHM) CashFlowFlag
INCOME STATEMENTPULTEGROUP INC (PHM)
CashFlowFlag BALANCE SHEETPULTEGROUP INC (PHM)
Statement of CASH FLOWFiscal year ends in December. USD

in millions except per share data.Dec-16Dec-17Dec-18Dec-
19Dec-20TTMFiscal year ends in December. USD in millions
except per share data.Dec-16Dec-17Dec-18Dec-19Dec-20Fiscal
year ends in December. USD in millions except per share
data.Dec-16Dec-17Dec-18Dec-19Dec-
20TTMRevenue568058225982766885739980AssetsCash Flows
From Operating ActivitiesCost of
income2620474494603447862Gross
amortization324046545149Operating expensesCas h and cash
investments288340443539571Deferred income taxes-
2096224312335422525Other operating
expenses131313141414Total cash1868163211971238843Stock
based compensation302925223429Total operating
expenses582681603971905935Receivables13761130307213Cha
nge in working capital248-484-1242-967-481-110Operating
income5917038209699531419Inventories397943925450677171
47Inventory265-347-928-897-569-75Interest
Expense111111Prepaid expenses157200271302325Accounts
payable-17-24-247566-58Other income (expense)-62-13-4-34-
148Other current assets170233239185202Income taxes
payable7-15Income before taxes5286908169349391427Total
current assets63116518728888048731Other working capital-6-
99-290-1452224Provision for income taxes-
2092215322331492565Non-current assetsOther non-cash
items371562-2-4Net income from continuing
operations2620474494603447862Property, plant and
equipmentNet cash provided by operating activities881309-
348686631426Net income2620474494603447862Gross
property, plant and equipment259298272270277Cash Flows
From Investing ActivitiesPreferred
dividend2033559Accumulated Depreciation-182-192-186-193-

206Investments in property, plant, and equipment-29-49-45-39-
32-55Net income available to common
shareholders2601471491598443852Net property, plant and
equipment77105867771Property, plant, and equipment
reductions00Earnings per shareEquity and other
investments4540415163Acquisitions, net-1-74-445-23-
2Basic6.791.271.381.761.452.99Goodwill4040Other investing
activities-
16551513515Diluted6.721.261.361.751.442.97Intangible
assets136123110114101Net cash used for investing activities -
46-68-31-471-50-42Weighted average shares
outstandingDeferred income taxes2087172113951049645Cash
Flows From Financing
ActivitiesBasic383370357340305287Other long-term
assets7861474136Debt
issued35753267928263320Diluted387374360342307288Total
non-current assets2423205116801374956Debt repayment-513-
251-364-1606-2855-3608EBITDA5607308639899901476Total
assets873485698967101789687Common stock repurchased-128-
253-443-603-916-430Liabilities and stockholders'
equityDividend paid-38-76-116-125-113-105LiabilitiesOther
financing activities1916116282Current liabilitiesNet cash
provided by (used for) financing activities-660-529-160351-
1030-821Accounts payable203271328405394Net change in
cash176-287-539-52-417562Taxes payable20649573587Cash at
beginning of period140515801293775723197Accrued
liabilities11181083103112111150Cash at end of
period15801293754723306759Other current liabilities3229Free
Cash FlowTotal current
liabilities15271403144816801630Operating cash flow881309-
348686631426Non-current liabilitiesCapital expenditure-29-49-
45-39-32-55Long-term debt21641981238834613445Free cash
flow852260-394296311371Deferred
revenues135143186188251Other long-term
liabilities260238186190207Total non-current
liabilities25582362276038393902Total

liabilities40853764420855195533Stockholders' equityCommon
stock44333Additional paid-in
capital30523073309431163172Retained
earnings1594172916631540980Accumulated other
comprehensive income-1-1-1-10Total stockholders'
equity46494805475946594154Total liabilities and stockholders'
equity873485698967101789687
Q.1 Week 7: Collaboration – Lega(Choose title from Chapter 4,
16,17, and 23)
Confirm your position in the group to determine if you are the
leader for the week. If you are the leader, your responsibility is
to post the article for your collaboration group based on the
topic of emphasis prior to the class session.
You are required at minimum to provide three (3) quality posts
per collaboration discussion for full credit.
Reading
Chapter 4: Alternative Tools of Dispute Resolution
Chapter 16: Law and Business Associations—I
Chapter 17: Law and Business Associations—II
Chapter 23: Rules Governing the Issuance and Trading of
Securities
Examples for Q1
Reading Chapter 6: White-Collar Crime and the Business
Community
Chapter 24: Antitrust Laws
Chapter 25: Laws of Debtor-Creditor Relations and Consumer
Protection
Hello Professor and Class!
For this week's discussion, I am going to incorporate politics
and white-collar crimes.
White collar crimes are crimes that've been committed in from a
business or large organization standpoint and have influenced
the finances of these industries. It doe not necessarily mean that

you have committed a crime that involves physical injury,
assault, or those involving violence.
Policitalwhite collar crimes usually involves someone with a
public official status with their actions benefitting only
themselves or their party. This may include accepting bribes,
may include corruption, extortion, inside trading, and other,
again, involving finances and monetary gains (Political White
Collar Crime: Definition & Examples).
What are some modern day and real-life political white collar
crimes we've seen today?
Although this particular crime was not done terribly recently,
the Savings and Loan Scandal of the 1980s is a notorious crime
having been done in the U.S.
I have attached the link to further read on this time in history.
https://www.federalreservehistory.org/essays/savings-and-loan-
crisis (Links to an external site.)
Political White Collar Crime: Definition & Examples.
Study.com. https://study.com/academy/lesson/political-white-
collar-crime-definition-examples.html.
Q.2 Article in the News (20 Points) (1 and Half)(Don’t forget
to put the content titles)
Note: In Weeks 1-7 you will be submitting news articles, or
journal articles, that relate with the subject of the chapters
assigned for the week.
You will need to upload your submissions, with reasoning to
support how the article is relative to the chapters in your
textbook.
· Individual student specific submissions of articles relative to
the assigned chapter reading for the week assigned.
· Proper application of the article chosen to the weekly chapter

reading relative to one or all the chapters assigned.
· Student support for the article and specific application to
chapter reading citing the textbook sections relative to the
article.
Reading
Chapter 4: Alternative Tools of Dispute Resolution
Chapter 16: Law and Business Associations—I
Chapter 17: Law and Business Associations—II
Chapter 23: Rules Governing the Issuance and Trading of
Securities
Grading Rubric
Item
Description
Points
Article Choice
Relative news article or journal article uploaded
5
Application
Proper application of the article chosen to the weekly chapter
reading relative to one or all of the chapters assigned.
5
Reasoning
Student support for the article and specific application to
chapter reading citing the text book sections relative to the
article.
5
Submission
Well worded and language specific to the topic presented at a
graduate level
5

Nancy k. kubasekm. neil brownebartley a. b

Nancy k. kubasekm. neil brownebartley a. b

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