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Chapter 01 - Taking Risks and Making Profits within the Dynamic Business Environment
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commerce, the importance of physical locations has diminished. In fact, some intrepid entrepreneurs have
given up permanent addresses entirely in order to cut down costs and increase mobility.
The types of business best suited for going off the physical grid are tech companies, service pro-
viders, media firms and even accountants. For instance, Margis Murgatroyd and her husband have jetset-
ted across the globe since 2012 while earning a six-figure income from their Internet marketing company.
Although the pair gets the opportunity to visit many exotic locales, unfortunately their independent life-
style requires them to work long hours. “You have to learn to develop self-motivation and consistent
scheduling habits,” says Jimmy Hayes, an expat entrepreneur who operates a travel-gear line in Vietnam.
“Otherwise it's too easy to get distracted by the fun outside your door.”
These business nomads utilize every tool at their disposal to stay connected with the world
around them. One mobile entrepreneur, Meg McAllister, ensures she stays in touch by renting mailboxes
and using a service to transcribe her voicemail and faxes into email as she travels throughout North
America. “Indie consultants worry that they'll seem small-time to a client if they don't have all the trap-
pings a larger company does,” McAllister says. “I prefer to present it as a plus to clients. The more over-
head I have, the higher my fees need to be to cover them. At the end of the day, my clients don't care
where I get the job done, just that I get the job done.” While some roving entrepreneurs crisscross interna-
tional borders, others concentrate on a single country. As a matter of fact, a particularly plucky married
couple travels the U.S. in their Winnebago as one works as a valuation consultant and the other operates a
pet website.v
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AMERICA’S LOST DECADE
It’s no secret that the past few years have been rough on the U.S. economy. Sadly, though, the
American financial sector’s recent rockiness tells only a portion of the decade’s dire story. When looked
at as a whole, the time known by some as the “Oughts” (2000–2009) was an enormous step backward for
the economy. While every decade since the 1940s has seen job growth of at least 20%, from December
1999 on there has been zero net job creation in the United States. Adjusted for inflation, middle-income
households made less money in 2008 than in 1999, marking the first decade to see falling median in-
comes since the data were first gathered in the 1960s. Finally, the net worth of American assets, such as
the value of their houses and retirement funds, has also declined, another unprecedented occurrence in
recent American economic history.
Some of these sobering figures could be attributed to poor timing, seeing as the prosperous 1990s
gave way to the burst of the dot-com bubble in the early 2000s. But while bad luck may have a little to do
with America’s disastrous decade, most of the Oughts’ stagnation stemmed from the trillions of dollars
funneled into housing investment and consumer spending. The money that made its way into these mar-
kets found no sustainability, eventually creating a distorted depiction of economic growth that failed to
reflect America’s toxic addiction to debt. In total, household debt increased 117% from 1999 to its peak
in 2008. At the same time, corporate debt spiraled out of control as financial firms engaged in fruitless
buyouts and dumped billions into commercial real estate. The 2008 burst of the housing bubble eventual-
ly brought the financial world back to reality, where it has been struggling to pick up the pieces ever
since.
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For all its destructive elements, the economic debacle of the 2000s has succeeded in providing
government officials, financial experts, and the public with some much-needed perspective. Due to the
magnitude of the Oughts’ financial failures, economists will be unraveling all its lessons for some time.
However, one obvious source of reform for regulators is the banking industry. Instead of monitoring indi-
vidual banks closely, regulators must now observe the banking industry as a whole to measure its overall
effect on the economy. Reforms to Federal Reserve policy are also expected, but Fed officials are still
uncertain how to implement them.vi
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CRASH TESTING CARS WITH COMPUTERS
Research and development has long been an expensive element of the auto industry. For decades de-
vising even the smallest addition to an engine could cost millions of dollars and take as long as eight months to
accomplish. But thanks to advances in technology over the last five years, engineers can now test dozens of
designs within a virtual environment. As a result, automakers are at last seeking affordable innovations in fuel
efficiency and overall vehicle performance.
For instance, in 2010 Ford was nearly ready to roll out the latest edition of its bestselling Explorer
model. However, a problem with the vehicle’s brake rotor threatened to push back the launch until a replace-
ment could be made. While this could have taken months to do just a few years before, Ford engineers were
able to design, test and manufacture a new rotor within a week. The company’s high-powered software allows
them to create the most efficient design possible, which is then altered to factor in manufacturing constraints.
With a price tag of only a few thousand dollars, the process allows automakers to take chances on designs that
they could never have realized previously.
One of those new designs includes a 1.5-liter engine that will be introduced in China later this year.
This small, fuel-efficient engine will allow drivers to avoid expensive taxes on larger engines without sacrific-
ing performance. In fact, carmakers will face similar restrictions in the American market once regulations re-
quiring vehicles to double in fuel efficiency goes into effect in 2025. Simulating the R&D process will allow
Detroit manufacturers to experiment with a number of designs. Free of their reliance on physical prototypes,
carmakers can now run their vehicles through situations where they encounter extreme cold, intense heat and
other environments. The software also allows engineers to crash cars repeatedly in order to judge their safety
standards. All these high-tech features require substantial computing power, which Ford houses in several mul-
ti-story buildings packed with machines. Expect big things in the future from Detroit if their technology can
stay ahead of the curve.vii
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SNAPCHAT: THE LATEST COMMUNICATION REVOLUTION
Technology expands at such a rapid clip that even the most seemingly enduring advancements
can turn obsolete in a blink. For instance, just a year few years ago industry experts predicted text mes-
saging would all but eradicate casual phone conversations from many people’s daily lives. But while
Americans continue to text quite a bit, they’re not doing it as much as they used to. According to a tele-
communications consulting firm, the average U.S. cell phone user sends 628 texts per quarter, down by 8
percent from 2011.
Instead, many people, especially teens and 20-somethings, are relying more and more on photo
sharing apps like Snapchat to communicate. Rather than tediously typing away on their smartphone key-
boards, Snapchat lets users take a quick picture to convey their message. The sender then decides how
long the photo’s recipient will get to look at the image before it disappears. The fact that all of this can
take place over the course of just a few seconds makes it even more efficient than texting. On top of that,
Chapter 01 - Taking Risks and Making Profits within the Dynamic Business Environment
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many young people feel more expressive communicating visually rather than verbally. After all, a text
only contains a few sentences, but a picture is worth a thousand words.
The Snapchat stats are staggering: every day users send a total of 350 million photos and videos
through the app. And while some may dismiss Snapchat as a youthful fad, keep in mind that similar criti-
cisms were levied at Facebook and Twitter in their early days. Nevertheless, one true problem that Snap-
chat shares with the larger social networks is its potential for profitability. The app currently generates no
revenue and faces increased competition from copycat outfits like Facebook’s Instagram Direct. But even
if Snapchat fails to capitalize on its own popularity, experts agree that photo-messaging is here to stay no
matter what. As one telecommunications professor at University of Michigan put it: “The motivations are
there to share yourself in a symbolic way, in an economical way, in a more in-the-moment way.”viii
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PREVENTING IDENTITY THEFT
Each year, millions of Americans fall prey to identity theft. Your identity is not just your unique
DNA and fingerprints. It is also your Social Security number, credit card numbers, driver’s license num-
ber, telephone calling records, date of birth, home address, phone numbers, and passwords. An identity
thief can use those bits of information to take over your credit rating, bank account, and credit card ac-
counts.
For example, personal information on about 650,000 customers of JCPenney and up to 100 other
retailers could have been compromised when a computer disk went missing. GE Money, which handled
credit card operations for JCPenney and many other retailers, reported that the missing information in-
cluded Social Security numbers for about 150,000 people.
The Identity Theft Resource Center says there has been a sixfold increase in the number of credit
breaches in the United States.
HOW IDENTITY IS STOLEN
Thieves often rely on hacking vulnerable computer systems to harvest information. In 2005, the
credit card processing agency CardSystems revealed that it improperly kept information on credit card
customers for research. When hackers breached the system, over 40 million customers were exposed.
In January 2009, Heartland Payment announced that the company’s card processing system had
been hacked. En route to Heartland’s processing centers, data-sniffing software captured credit card in-
formation from the card’s magnetic strip. This included everything needed to duplicate a card: card num-
ber, expiration date, and internal bank codes. Since the company handles more than 1.2 billion credit card
transactions ranging from restaurants to retailers to payroll systems, chances are someone in every state
was affected by this data loss.
Con artists can also pose as legitimate debt collectors or insurance agencies, scamming businesses
into sending them sensitive information. In 2004, ChoicePoint sent thousands of reports stocked with
names, Social Security numbers, and financial information to con artists.
Thieves can also harvest your individual information in a number of creative ways. “Dumpster
diving” involves sorting through trash bins for loan applications, credit card documents, or anything
printed with Social Security numbers. Crooks can lurk at ATMs or phone booths and “shoulder surf,”
picking off PINs, credit card numbers, and passwords. Some talented con artists have even attached data
storage devices to ATMs to steal credit and debit card numbers. “Phishing,” posing by e-mail or phone as
a legitimate company and claiming that there is a problem with a customer’s account, regularly takes in
gullible consumers. Then there is the low-tech technique of stealing credit cards, tax info, and financial
correspondence by rifling through unprotected mailboxes. Finally there is the good old-fashioned method
of stealing wallets and purses.
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HOW YOU CAN PROTECT YOURSELF
1. Place the contents of your wallet on a photocopy machine. Do both sides of each license, credit
card, and so on. That way you will know what you had in your wallet and all of the account num-
bers and phone numbers to call and cancel. Keep the photocopy in a safe place.
2. Don’t use the last four digits of your Social Security number, your mom’s maiden name,
birthdate, or pet’s name as your password or PIN.
3. Shred financial documents and paperwork with personal information before your discard them; in
fact, shred every piece of trash containing your credit card number, bank account number, Social
Security number, or tax information.
4. Review your bills each month for misuse; store canceled checks safely; shred preapproved credit
offers before throwing them away.
5. The next time you order checks, have your checks printed with only your initials (instead of first
name) and last name. If someone takes your checkbook, he or she will not know if you sign your
checks with just your initials or your first name, but your bank will know how you sign your
checks.
6. Do not sign the back of your credit cards. Instead, put “PHOTO ID REQUIRED.”
7. When you are writing checks to pay on your credit card accounts, do not put the complete ac-
count number on the “For” or “Memo” line. Instead, just put the last four numbers. The credit
card company knows the rest of the number. That way no one who might be handling your check
as it passes through the entire check-processing channel will have access to it.
8. Put your work phone number on your checks instead of your home phone. If you have a Post Of-
fice box, use that instead of your home address. If you do not have a P.O. Box, use your work ad-
dress. Never have your Social Security number printed on your checks. You can add it at the
checkout if it is absolutely necessary (and it usually is NOT). But if you have it printed, anyone
can get it.
9. Never click on links sent in unsolicited e-mails; instead, type in a Web address you know. Use
firewalls, antispyware, and antivirus software to protect your home computer.
10. Most states are now moving away from using Social Security numbers on driver’s licenses. When
you renew your license, ask about using a substitute number.
SIGNS THAT YOUR IDENTITY MIGHT HAVE BEEN STOLEN
Be alert to signs that require immediate attention such as:
1. Bills that do not arrive as expected
2. Unexpected credit cards or account statements
3. Denials of credit for no apparent reason
4. Calls or letters about purchases you did not make
WHAT TO DO IF YOUR IDENTIFY IS STOLENix
1. Immediately cancel your credit cards. The key is having the toll-free numbers and your card
numbers on hand so you know whom to call. Keep those where you can find them. Follow up in
writing with copies of supporting documents. Choose new passwords for new accounts.
2. File a police report immediately in the jurisdiction where your credit cards were stolen. This
proves to credit providers that you were diligent, and this is the first step toward an investigation.
3. Call the three national credit reporting organizations immediately to place a fraud alert on your
name and Social Security number. The alert means any company that checks your credit knows
your information was stolen, and it has to contact you by phone to authorize new credit.
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4. File a complaint with the Federal Trade Commission, and report the fraud to the Social Security
Administration.
Below are the important telephone numbers you will need to begin rebuilding your credit:
Equifax: 1-800-766-0008 (www.equifax.com)
Experian: 1-888-EXPERIAN (www.experian.com)
Trans Union: 1-800-680-7289 (www.transunion.com)
Federal Trade Commission 1-877-ID-THEFT (www.ftc.gove/idtheft)
Social Security Administration (fraud line): 1-800-269-0271 (www.ssa.gov)
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THE HIGH DEMAND FOR GREEN DEGREES
We all know the job market has been tough on new college grads the past few years. Despite
drive and degrees, many graduates left school only to find few opportunities for the young and inexperi-
enced. In order to avoid the job crunch, currently enrolled students are beginning to seek majors that are
more likely to promise success in the job market after graduation. One such area is environmental sus-
tainability, which the Obama administration estimates will have 52% job growth through 2016. As a re-
sult, more schools are adding green majors to their curriculums, and students are filling the classes in
droves.
In 2005 only three schools had energy and environmental sustainability degree programs. In 2008
though, colleges big and small created more than 100 major, minor or certificate programs in green stud-
ies. Even cash-strapped schools that have cut other majors are adding sustainability degrees to their cur-
riculum. The idea is too good for many colleges to pass up: Students want to take the classes, and em-
ployers actually want to hire the trained students. For example, Arizona State University established an
undergrad program in sustainability studies. Now the school has about 600 sustainability majors on cam-
pus, an unprecedented number for a new degree program.
Similar programs have been established in top-flight schools like MIT and the University of Cali-
fornia–Berkeley. Some colleges, such as Illinois State University, have received grant money from the
Department of Energy to start up sustainability course plans. For several of these schools, renewable en-
ergy and environmental majors can be among the most selective degree programs. But as long as green
jobs stay in demand, which by all accounts they should, green degrees are expected to turn up at even
more schools.x
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lecture enhancer 1-11
MILESTONES IN BUSINESS
190 Development of the abacus
1776 American Revolution
1790 First patent laws are passed
1830s Labor begins to organize
1834 McCormick patents wheat harvester
1841 First American advertising agency
1867 Invention of the typewriter
1876 Invention of the phone
1903 Wright brothers invent airplanes
1911 Invention of air conditioning
1930 First supermarket/Beginning of Depression
1946 A general-purpose computer is available
1950s The service economy takes off
1955 Disneyland opens
1963 Equal pay for equal work
1972 E-mail is invented
1976 Apple Computers are introduced
1981 IBM PCs enter the fray
1996–2000 Fastest-growing industries are in services: computer and data processing, health, public
relations, residential care, etc.
2003 Genetic engineering growing in importance
2007–2008 Housing market collapses; stock market falls over 50%; government nationalizes major
financial institutions
2009 Stem cell research is approved
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critical
thinking exercises
Name: ___________________________
Date: ___________________________
critical thinking exercise 1-1
HOW MUCH PROFIT?
The text defines profit as “the amount a business earns above and beyond what it spends for sala-
ries and other expenses.” Choose a large corporation representing each of the following types of compa-
nies. Using the above profit definition, how much profit as a percentage of sales do you think each corpo-
ration earns? In other words, out of every dollar a company earns, how much does it keep?
1. BANKING
Corporation _____________________ Percent Estimated Profit ____________
2. FOOD MANUFACTURER
Corporation _____________________ Percent Estimated Profit ____________
3. AIRLINE
Corporation _____________________ Percent Estimated Profit ____________
4. COMPUTER COMPANY
Corporation _____________________ Percent Estimated Profit ____________
5. OIL AND PETROLEUM
Corporation _____________________ Percent Estimated Profit ____________
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notes on critical thinking exercise 1-1
Students often have a much-exaggerated idea of the amount of profit big corporations make. This
exercise should help set the record straight.
Each spring, Fortune magazine publishes a comprehensive listing of the largest U.S. corporations
along with annual income, profit, employees, and so on. There are several financial references on the
Web, such as www.moneycentral.msn.com/investor, www.biz.yahoo.com, or www.marketwatch.com.
You can also find the information on each corporation’s website. You can use these resources to find the
most recent profit figures for comparison.
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Name: ___________________________
Date: ___________________________
critical thinking exercise 1-2
JOB AND CAREER VERSUS OWNING A BUSINESS
To help make a decision about the advantages of pursuing a career and the advantages of owning
your own business, use the list below to answer some basic questions. At the end, look at your two choic-
es and see where you might have a reason to pursue your anticipated career or where you might find an
interest and potential desire to be a small-business owner.
1. CAREER SALARY OPPORTUNITIES (circle one)
Beginning Salary (average/good/excellent)
Upper Job Salary (average/good/excellent)
2. CAREER JOB OPPORTUNITIES (circle one)
Growing Field (yes/no)
Requires Trade School/Associate Degree/Bachelor’s Degree (yes/no)
Best-Sized Company for Career Job (small/middle-sized/large)
3. SMALL-BUSINESS OWNERSHIP OPPORTUNITIES (circle one)
Requires Up-Front Investment (small investment/medium-sized investment/large invest-
ment)
Potential Franchise Has a Good Business Model (yes/no)
Competition from Other Franchise Owners Will Be (nonexistent/some competition/will
be very competitive)
4. POTENTIAL RETURN ON THE SMALL-BUSINESS PURCHASE (circle one)
Provides Purchase of Additional Locations (yes/no)
Has Name Recognition (yes/no)
Has a Good Support System (yes/no)
5. If you could, would pursuing your ideal career be worth the investment? (yes/no)
6. Are you willing to make the investment (more schooling) and work for moderate pay to get the
knowledge and experience to make this investment pay off? (yes/no)
7. If you could investment in your own business, would you and could you obtain the necessary fi-
nances to make this happen? (yes/no)
8. Is the risk of the unknown in the business environment worth the pursuit of your time, money,
and family adjustment to own your own business? (yes/no)
9. Given the two choices, what direction would you rather pursue?
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Name: ___________________________
Date: ___________________________
critical thinking exercise 1-3
MAKING ETHICAL DECISIONS
Throughout the textbook, you will see a box in chapters called Making Ethical Decisions. You
will be given a short description of a situation and then asked what you would do in that situation. These
boxes may or may not be assigned by your professor, but you will benefit greatly by reading them and
answering the questions. If they are assigned, you probably won’t be required to hand in a written report.
Your professor will probably have no real way of knowing if you read the boxes and answered the ques-
tions. You are likely to be “on your honor.”
This is your first ethical situation in this course: You come to a Making Ethical Decisions box in
your text. What do you decide to do—read and answer the questions, or skip it and go on?
Use the questions below to help you make your decision.
1. What is the problem?
2. What are your alternatives?
3. What are the effects of each alternative? (What will happen if you choose that alternative?)
4. Which alternative will you choose? Why?
5. Is your choice ethical? (Would you want your family and professor to know of your decision?
Would you want it printed in the school paper? Is it fair to all parties involved?)
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notes on critical thinking exercise 1-3
It is easy to skip ethical boxes in a text because they don’t seem to have any direct relationship to
your main goal in this class—to learn about business so you can get a good job and make good money.
The problem is that businesspeople tend to have the same attitude. They don’t want to waste their time
making ethical decisions—they want to make decisions that result in more profit for the firm. There
comes a time, however, when society must recognize the need for making moral and ethical decisions and
puts so much pressure on people that they conform. This can take the form of laws, but it is much easier
to permit more freedom for people to choose to act morally and ethically on their own. You should en-
courage your students to choose what is right always, and what is right in this case is to consider the mor-
al and ethical ramifications of their business decisions so that it becomes automatic. “Is it right?” should
be heard in corporate offices as often as “Is it profitable?”
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bonus
case
bonus case 1-1
NETWORKING OUTSIDE THE NET
On the surface, people appear to network with one another now more than ever. Social media
dominate many people’s lives while smartphones ensure that everybody can get in touch with everyone
else anywhere at anytime. Nevertheless, digital interaction is no replacement for genuine human contact.
As social media become more prevalent and accessible, the information they disseminate runs the risk of
losing its value. To put it another way, Which carries more weight: a handshake or a Facebook poke?
For recent grads and experienced rat race veterans alike, nothing beats the old networking maxim
“See and be seen.” Industry events and conferences provide invaluable face time and can be found listed
in trade magazines and, ironically, on social networks. Though living one’s professional life solely online
can be detrimental, Facebook and Twitter are useful for finding solid networking spots, especially infor-
mal gatherings. Green Drinks, for instance, regularly hosts casual get-togethers for green industry profes-
sionals to meet and exchange information.
Networking face-to-face also means maintaining a professional image. Not only does that entail
dressing well and speaking clearly, it also includes promptly returning correspondence and clearing your
Facebook page of any regrettable photos. Again, it’s important to remember that social media and “real
life” are not separate things. Social networking practices like “tweetups” help bridge the gap by putting
people in physical contact with those who have active online personas. Finally, keep in mind that net-
working goes both ways. If people come off too aggressive about their own ambitions, they may appear
too wrapped up in their own endeavors to care much about their contacts. Young professionals are ad-
vised to be ready to give assistance first rather than asking for it on the first meeting. That way they can
build a rapport of equality that could pay off in the long term.
discussion questions for bonus case 1-2
1. What can we conclude about digital interaction and human contact?
2. Why is it important to keep your Facebook account professional?
notes on discussion questions for bonus case 1-2
1. What can we conclude about digital interaction and human contact?
It’s obvious that, used correctly, the two can go together like peanut butter and jelly. As the ab-
stract notes, industry events and conferences provide valuable face time with peers and contacts.
2. Why is it important to keep your Facebook account professional?
Your Facebook page provides a image of you in the same way your personal appearance does.
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endnotes
i Source: “The World’s Billionaires,” Forbes, accessed December 2014.
ii Source: Jenna Johnson, “Today’s Typical College Students Juggle Work, Children and Bills with Coursework,”
The Washington Post, September 14, 2013
iii Source: Josh Dean, “Is This the World’s Most Creative Manufacturer?” Inc., October 2013.
iv Sources: Allison Overholt, “Health and the Profit Motive,” Fast Company, February 2003, p. 38; Victoria Hale,
“Creating More Paths to Hope,” Newsweek, December 6, 2004.
v Source: Elaine Glusac, “Operating a Business Without a Permanent Address,” Entrepreneur, January 31, 2014.
vi Source: Neil Irwin, “A Lost Decade for U.S. Economy, Workers,” The Washington Post, January 1, 2010.
vii Source: Mike Ramsey, “Car-Part Designers Step on the Gas,” The Wall Street Journal, October 21, 2013.
viii Source: Victor Luckerson, “Photo Messages Could Make Texting Disappear,” Time, December 30, 2013.
ix Sources: “Your Privacy for Sale,” Consumer Reports, July; “Deter, Detect, Defend: Avoid ID Theft,” The Federal
Trade Commission, www.ftc.gov; Sid Kirchheimer, “Phishing Phrenzy,” AARP Bulletin, February 2007; David
Koenig, “Data Lost on 650,000 Credit Card Holders,” Associated Press, January 18, 2008; “Major Data Breach Puts
Millions at Risk,” CBS News, January 23, 2009; Brennon Slattery, “Heartland Has No Heart for Violated Custom-
ers,” PC World, www.PCWorld.com, January 21, 2009; Elinor Mills, “Three Data Breaches Hit Florida, One Hits
the Feds,” CNET News, www.CNET.com, February 20, 2009; Erik Larkin, “Keep Tabs on Your Financial Data to
Fight Identity Theft,” PC World, www.PCWorld.com, August 15, 2008; Elinor Mills, “‘SMiShing’ Fishes for Per-
sonal Data Over Cell Phone,” CNET News, www.CNET.com.
x Source: Julie Schmidt, “As Colleges Add Green Majors and Minors, Classes Fill Up,” USA Today, December 28,
2009.
