Read Ethical Dilemma: How Much Should You Pay To Be Green

Read Ethical Dilemma: How Much Should You Pay To Be “Green’

Main discussion answer below 3 questions. Read Ethical Dilemma: How Much Should You Pay To Be “Green”. Do you think that it is okay for Trace to change the way she computes SS’s WACC? What would you do if you were Tracey? DISCUSSION ANSWER?

POST1- Alicia

Each week it seems the employee is up against determining an ethical dilemma that is also impacted somehow by company policy. In this case, Tracey is balancing her personal interests with professional decisions -- and deciding whether to change the typical way SS’s WACC is computed. I don’t believe it’s okay for Tracey to change the way she computes WACC in order to boost the chances of an investment, unless she's being fully transparent about her actions. According to Besley et al. (2015), “It has been the policy of the company to compute the weights for the capital components using the market values of the firm’s debt and equity” (p. 477). If Tracey changes her approach to calculating WACC, it would also be going against company policy and it becomes inconsistent with how the company weighs decisions.

If I were Tracey and felt passionate about investing in this green company, I would approach management with the reasoning about why the investment was worthy. I’d also be fully transparent with any changes to the calculation that go against policy, and show both ways the calculations could be done. Going outside of the policy and presenting calculations without additional reasoning upfront could end up being detrimental for many reasons, especially knowing leadership is making potential investment decisions based on her work. Not worth the risk, unless everyone is transparent and on the same page with the rationale.

POST2- Kayla

Tracey is faced with the ethical dilemma of whether to follow professional versus personal motivations. According to Besley et al. (2015), WACC "represents the minimum return the firm must earn on its investments (assets) to maintain its current level of wealth; it is the firm's required rate of return" (p. 457). If Tracey were to change the way she computes Sustainable Solution's WACC, it wouldn't accurately depict the correct values for the business and would also be against company policy. It has been a policy at the company to compute weights for capital using the market value of their debt and equity, and not the book value (Besley et al., 2015, p. 477). If Tracey uses a different approach to calculate the proportion of debt and equity for WACC, it would result in a higher weight of debt which reduces the rate of return and would ensure the new project would be approved.

Using the book value of debt and equity would not be acceptable in this fashion, as the ratio must be calculated based on market value. Although Tracey feels that the book values are more appropriate, it would be hard to explain to her boss once investigated further. If I were Tracey, I would go by the rules and use the market value and leave my personal interests and motivations to myself. There may be an opportunity to speak to leadership about why this new 'green' company may be a good opportunity outside of just financial returns, such as boosting SS into a leadership role in the environmental industry. Business decisions aren't always about money, so there could be room to sway the decision if it fits the company's core values.

POST3 - Tiffiny

I took a Fundamentals of Accounting course during my undergraduate program where I learned that you cannot just change the way you compute information from year to year. If Tracey decides to switch from using market values to using values, it has the possibility of changing interpretation or comparison of any given year. Switching to book value needs to be a company decision and everyone involved should be aware of the change being made. At minimum, Tracey should bring it up to management and show them her results and request a change to book values instead of just trying to make a silent switch. There might be a reason, unknown to Tracey, as to why the company has always used market values instead of book value.

Paper For Above instruction

Financial decision-making in organizations often encounters ethical dilemmas, especially when personal values and professional policies intersect. The case of Tracey, a financial analyst contemplating modifying her approach to calculating the Weighted Average Cost of Capital (WACC) for Sustainable Solution (SS), exemplifies such an ethical challenge. This paper examines the ethical considerations involved in changing established financial measurement methods, the implications of transparency, and the professional responsibilities that guide such decisions.

WACC is critical in investment analysis as it represents the minimum return required for a company’s investments to create value (Besley et al., 2015). It combines the cost of equity and debt, weighted according to the firm’s capital structure, and is typically calculated using market values, as mandated by company policy. This approach ensures consistency and comparability over time, facilitating accountability and transparency in financial reporting (Besley et al., 2015). When an employee considers deviating from this standard, especially to favor a particular project like a green investment, ethical questions regarding honesty and integrity arise.

One perspective is that altering the WACC calculation without proper authorization violates the company's policy and compromises financial integrity. Alicia’s stance emphasizes transparency and adherence to policy, asserting that any departure should be accompanied by open communication and justification to management. Such transparency preserves trust and protects the company’s reputation, aligning with ethical principles of honesty and accountability (Craig & Jarrell, 2014). Conversely, changing the calculation to favor an environmentally friendly project raises concerns about impartiality and the potential for manipulating financial metrics to influence investment decisions dishonestly.

From an individual standpoint, if one feels strongly about supporting green initiatives, the ethical course is to present well-founded arguments to leadership, advocating for the project openly. Explaining why the green investment aligns with corporate values and societal benefits can provide a compelling case. Moreover, any methodological changes should be thoroughly documented, justified, and communicated transparently to prevent misunderstandings or allegations of bias (Kirkwood & Purdy, 2020). Such actions uphold professional integrity and align with ethical standards in financial reporting.

Another layer involves the potential consequences of circumventing standard procedures. If innovation or strategic shifts are genuinely necessary, they should be approved through formal channels, with modifications integrated into official policies if justified. Resistance to such procedural adherence might be motivated by personal interests rather than organizational benefit, risking reputational damage and legal repercussions (Matten et al., 2018). Therefore, maintaining alignment with company policies and industry standards is imperative in ethically responsible decision-making.

In conclusion, while personal motivations can influence professional judgments, financial practitioners bear the primary responsibility to uphold ethical standards by adhering to established policies and promoting transparency. If a deviation is warranted, it must be justified through transparent communication and formal approval processes. This approach preserves organizational integrity, supports ethical conduct, and sustains stakeholder trust. As professionals, we must prioritize honesty and accountability, especially when our decisions could impact the company's financial standing and public image.

References

• Besley, S., Brigham, E. F., & Ehrhardt, M. C. (2015). Financial Management: Theory & Practice. Cengage Learning.
• Craig, B., & Jarrell, G. (2014). Ethics in Financial Decision Making. Journal of Business Ethics, 121(4), 623–635.
• Kirkwood, J., & Purdy, J. (2020). Ethical Dilemmas in Financial Reporting. Accounting, Organizations and Society, 87, 101134.
• Matten, D., Crane, A., & Chapple, W. (2018). Embedded Stakeholder Theory. In The Oxford Handbook of Corporate Social Responsibility.