Discussion 200 words with 3 Responses reply

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 ok 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 goes against policy, and show both ways the calculations could be done. Going outside of the policy and presenting calculations without additional reasoning up front 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.

RESPONSE?

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's fits the company's core values.

Response?

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 valu

RESPONSE?