Purchase Solution

Corporate ethics senario concerning risky investments

Not what you're looking for?

Ask Custom Question

You are the CFO of a company that is capitalized with 50% debt and 50% equity. The debt is in the form of debenture bonds, which have relatively weak indentures. The President and COO, who is also a major stockholder, has proposed issuing new secured bonds and using the cash raised to expand into a potentially profitable but very risky market outside the United States. The CEO has directed you to begin working on a plan to issue the bonds. Is there an ethical problem with the proposal? Why? Who is likely to gain at whose expense? (Hint: How are the ratings of the existing debenture bonds likely to change and how might this affect existing bondholders?)

Purchase this Solution
Solution Summary

Corporate ethics senario concerning risky investments and shifts in capital structure.

Solution Preview

The president is directing a very risky move. By capitalizing the company with more debt than it has equity to invest in risky business, the ratings of the existing bonds will likely fall as the company stands a good chance of not being able to make good on interest payments nor bond redemption. When the ratings fall, so does the value making ...

Purchase this Solution
Free BrainMass Quizzes
Motivation

This tests some key elements of major motivation theories.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Introduction to Finance

This quiz test introductory finance topics.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

View More Free Quizzes
Related BrainMass Solutions

  • Risky investments

    Response discusses risky investments

  • 25 Questions for Corporate Ethics Audit

    INSIDER TRADING What are corporate rules concerning inside trading? What are corporate rules concerning material information? What are corporate rules concerning trading and tipping?

  • Relationship between risk aversion and investment decisions

    Risk aversion implies that when making investment decisions, corporate managers would prefer to take on less risky rather than more risk investments. On the other hand, risk avoidance refers to a tendency to avoid risk altogether.

  • Discuss risk factors in analyzing investments

    From there, you want to explain how expected returns can be calculated given the level of risk and outlining which investments are more risky and which are less risky.

  • Bankruptcy, Reorganization, & Liquidation

    However, if these risky investments pay off, the payoff goes to the shareholders.

  • Business Ethical Issues

    The organization has been accused for bad business ethics stemming from "assembling risky mortgage backed investments, making huge and profitable bets against the housing market and acting against interest of its clients" (Martin, S., 2010, p8).

  • Finance

    Third, explain which of the investments below are riskier and why: ? Corporate stocks ? Corporate bonds ?

  • Project payoff, debtholder & shareholders - Corporate Finance

    Debt holders prefer less risky investments, thus they will opt for Project A having guaranteed payoff of $200 million. On the other hand the shareholder prefer the risky investment and will go for Project B.

  • Ethics and Managers and Board of Directors, Corporate Shares

    The ethics for managers the board of directors in corporate shares are determined. The policies and procedures which could be put in place to mitigate any potential breach of ethics is determined.

View More Related Solutions