CFIN5 Chapter 9 Ethical Dilemma This Is a Good Investment-Be Sure the Numbers Sh
ID: 375388 • Letter: C
Question
CFIN5 Chapter 9 Ethical Dilemma This Is a Good Investment-Be Sure the Numbers Show That It Is! Oliver Greene is the assistant to the financial manager at Cybercomp Inc., a company that develops software to drive network communications for personal computers. Oliver joined Cybercomp 3 years ago, following his graduation from college. His primary responsibility has been to evaluate capital budgeting projects and make investment recommendations to the board of directors. Oliver enjays his job very much; he often finds himself challenged with interesting tasks, and he is paid extremely well Last week Oliver started evaluating the capital projects that have been proposed for investment this year. One proposal calls for Cybercomp to purchase NetWare Products, a company that manufactures circuit boards called network cards, which are required to achieve communication connectivity between personal computers. Cybercomp packages network cards with the software that it sells, but it currently purchases those circuit boards from another manufacturer. The proposal, which was submitted by Nadine Wilson, Cybercomp's CEO, suggests that the company might reduce costs and increase profit margins by producing the network cards in-house Oliver barely had time to scan the proposal when he was summoned to Mrs. Wilson's office. The meeting was short and to the point, Mrs. Wilson instructed Oliver to “make the numbers for NetWare Products look good because we want to buy that company." She also gave Oliver and evaluation of NetWare completed two years ago by an independent appraiser that suggests NetWare might not be worth the amount that Cybercomp is willing to pay. Mrs. Wilson instructed Oliver to find a way to rebut the findings of the report. Oliver was troubled by the meeting. His gut feeling was that something was wrong, but he hadn't yet had time to carefully examine the proposal. In fact, his evaluation was very cursory, and he was far from making a final decision about the acceptability of the proposed capital budgeting project. Oliver felt he needed much more infomation before he could make a final recommendation. Oliver has spent the entire day examining the appraisal report provided by Mrs. Wilson and trying to gather additional information about the proposed investment. The report contains some background information concerning NetWare's operations, but crucial financial data are missing. Further investigation into NetWare Products has produced little information. Oliver has discovered that the company's stock is closely held by a small group of investors. These investors own numerous businesses and contribute generously to the local university, which happens to be Mrs. Wilson's alma mater. In addition, Oliver's secretary has informed him that the gossip around the water cooler" at 2017 Cengage Lernrg. Al Rights Reserved. May not be, scanned, copied or ddicated, or posted to accessible webs to, in whole or in part publicly CFINS Cybercomp suggests that Mrs. Wilson and the owners of NetWare are old college buddies, and that she might even have a stake in NetWare. This morning, Mrs. Wilson called Oliver and repeated her feelings concerning the purchase of NetWare. This time she said: "We really want to people might not believe so, but it's a very good deal. It's your job to make the numbers work-that's why we pay you the big bucks!" As a result of the conversation, Oliver has the impression that his job might be in jeopardy if he doesn't make the "right" decision. This added pressure has made Oliver very tense. e NetWare. Some What should he do? What would you do if you were Oliver? Would your answer change if you knew Mrs. Wilson had recently sold much of her Cybercomp stock?Explanation / Answer
Oliver should not recommend anything but put the facts as it is and highlight the risk. Never play with the numbers or manipulate it, it is not good for the overall interest of the organization as well as would lead to unethical practices. I would prepare a report with all the data i have and with the details i have collected and collated. I would find the details as well as add the details given by MRS. Wilson. My report would not make a recommendation, but would state the fact that what are the merits and demerits of buying this firm and what potential implication it would have on the purchase. if the impact is negligible i would put that as it is and if it is heavy, i would raise a red flag and inform the board of why there is an issue.
My decision would not change, if i come to know that Mrs. Wilson sold her majority of stake in Cybercomp, because i always reported what was right for the organization and not for an individual and hence this will not have an impact on my report.