27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Ethics in Action

Danielle Hastings was recently hired as a cost analyst by CareNet Medical Supplies Inc. One of Danielle’s first assignments was to perform a net present value analysis for a new warehouse. Danielle performed the analysis and calculated a present value index of 0.75. The plant manager, Jerrod Moore, is intent on purchasing the warehouse because he believes that more storage space is needed. Jerrod asks Danielle to come to his office, where the following conversation takes place:

Jerrod: Danielle, you’re new here, aren’t you?

Danielle: Yes, I am.

Jerrod: Well, Danielle, I’m not at all pleased with the capital investment analysis that you performed on this new warehouse. I need that warehouse for my production. If I don’t get it, where am I going to place our output?

Danielle: Well, we need to get product into our customers’ hands.

Jerrod: I agree, and we need a warehouse to do that.

Danielle: My analysis does not support constructing a new warehouse. The numbers don’t lie; the warehouse does not meet our investment return targets. In fact, it seems to me that purchasing a warehouse does not add much value to the business. We need to be producing product to satisfy customer orders, not to fill a warehouse.

Jerrod: The headquarters people will not allow me to build the warehouse if the numbers don’t add up. You know as well as I that many assumptions go into your net present value analysis. Why don’t you relax some of your assumptions so that the financial savings will offset the cost?

Danielle: I’m willing to discuss my assumptions with you. Maybe I overlooked something.

Jerrod: Good. Here’s what I want you to do. I see in your analysis that you don’t project greater sales as a result of the warehouse. It seems to me that if we can store more goods, we will have more to sell. Thus, logically, a larger warehouse translates into more sales. If you incorporate this into your analysis, I think you’ll see that the numbers will work out. Why don’t you work it through and come back with a new analysis. I’m really counting on you on this one. Let’s get off to a good start together and see if we can get this project accepted.

What is your advice to Danielle?

To determine

Ethical Case Study

Case Summary:

Miss D was recently hired as a cost analyst by CM supplies Corporations to analyze the net present value for a new warehouse. This was the first assignment of Miss D. She did the analysis and calculated the present value index of 0.75. The plant manager Mr. J wanted to purchase the new warehouse because he believed that more storage space was required. For this reason he wanted a conversation between him and Miss D; where he clearly mentioned about his displeasure with the capital investment analysis performed by D, which states that no new warehouse is required. Supporting her analysis D said that the warehouse would not increase the value of business, and products should be produced to satisfy the customers not to fill the warehouse. Mr. J cleared that if numbers would not add up to the analysis done by D, then the headquarters would not permit him to build the warehouse. J also mentioned that D has considered many assumptions for the net present value analysis. He suggested him to rest some of his assumptions, so that the financial savings will offset the cost. Miss D volunteered herself to discuss her assumptions to which, J drew her attention to the following fact that more storage of goods would lead to more sales. If D would project this to her analysis, then there may be a possibility for the numbers to work out. At last J asked D to come with a new analysis so that, they both can have a good start together.

To advise: Miss D on this circumstance.


To analyze the net present value of a new warehouse was the first assignment of Miss D. So she did the analysis with her best judgment. But this analysis displeased the project manager, who used his position to influence her by asking her to relax some of her assumptions for the net present value analysis. He clearly mentioned that, he wanted to build a new warehouse but on the basis of analysis provided by D, headquarter won’t allow him to build. The plant manager wanted her to come with a new analysis so that they both can work together.

It’s obvious that D would be in ethical dilemma of going with her previous analysis or changing the analysis as per the requirement of the plant manager...

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