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Q0. Who cares about doing FSA or about FSA that is done with respect to PPLS around the
time of the case, and why? [There are several to identify]. (1 pt)
Q1. Describe the key aspects of PPLS’ business: what does it sell, to whom, how, etc.
Identify the economic means through which PPLS adds value for its members. (2 pts)
Q2. What are the major business risks PPLS faces? (2 pts)
Q3. How did PPLS’ pre-1995 commission structure work? How did PPLS’ post-1995
commission structure work? Why do you think PPLS changed its commission policy
in 1995? (2 pts)
Q4b. How do the patterns you observe in expected gross margin percentage connect or not
to the concerns of short sellers as expressed in the case? (2 pts)
Q5b. How does the expected amount of lapsed unearned commission advances you
calculated in Q5a connect or not to the concerns of short sellers as expressed in the
case? (1 pt)
Q6. Did PPLS’ percentage allowance for uncollectible lapsed unearned commission
advances increase or decrease in 1998 relative to 1997? What might explain the
change? (1 pt)
1
Q7. Do you agree with Fortune’s criticism of PPLS’ method of reporting for
commissions? Why or why not? (2 pts)
Q8. What actions could PPLS’ management take to reduce the unease among key
investors about the firm’s accounting and its business model? (1 pt)
Think probabilistically. The word “expected” in the phrase “expected revenues” means
“probability-weighted.”
For Q4 and Q5, you’re being asked to stay rooted in position at year 1, but taking into
account the expected consequences of events in years 2 and 3.
It may be useful to set up the following kind of table(s), e.g., for Q4
You may round the dollar numbers in your tables to the nearest $1.
Explain your reasoning and how you come to numbers you put into tables.
For Q5, you’ll need to add more lines, depending on how you tackle the issues.