1). Limited leverage for the business
The conventional economic theory suggests that the level of interest rates determine the demand and supply of loans ignoring the collateral. When an individual buys an asset, it may be used as collateral and borrow a loan against it though not to the whole amount equivalent to the asset. The individual is thus forced to finance with his capital the difference remaining between the value of the collateral and the price of the asset. This makes the asset become leveraged. Impatient borrowers make the interest rate to go high while nervous lenders demand more collateral. For instance the profitability index is 0.79 which is less than 1. Therefore, it is not advisable for Frank to invest in the business because the yield produced is less than the initial investment.
2). It is not appropriate to call the bank manager to approve the loan since it violates the financial, ethical standards
“Ethical issues in the financial industry apply to everyone because one is either a practitioner in the field or a customer” (Federwisch, 2015). People tend to have the notion that the financial section is the most unethical. This misconception persists for several reasons, the size of the industry. It covers from banks, insurance companies, securities firms, investment banks, pension’s funds and mortgage lenders. Because of its broad size, the industry tends to capture a lot of headlines, many of which reflect its ethical lapses. The industry also faces numerous regulations, so it is likely that a higher percentage of these irregular transactions are identified and reported. Ethical issues that hinder a cohesive financial industry that should be observed which considering our case;
1) Self-interest may reflect as greed and selfishness, which is unethical self-interest at the expense of someone else. This greed grows and accumulates and the main objective is that focus shifts from the long-term short-term with the main objective being profit maximization.
For example, if Frank succeeded in obtaining the loan this would have become attractive and led to a tendency. He would be given the loan even if he hardly qualified to make the funds unavailable to someone else.
2) Some people suffer from a hindered moral development: “This could result from three areas: failure to be taught, the failure to look past one’s perspective, and the failure to get proper mentoring,” (Federwisch, 2015).
Institutions reduce everything to an economic entity, “this is through the mentality of teaching where they say that do this by saying the fundamental purpose of business is to make a profit and maximize shareholder value” (Federwisch, 2015). This results in a situation where the fundamental objective never gets questioned and the ethics. This is because the fundamental purpose gives one the reason for its existence. It tells one whether they are doing it well or not.
3) Some people relate moral behavior to legal behavior, disregarding the fact that an action may not be illegal; it still might not be moral. “You should remember that the reason for all laws to be enforced is because the moral agreement begins to break down and this easily gets other people in line is to legislate so that punishments can be stipulated,” (Federwisch, 2015). While other people defend the fact that the only requirement is to obey the law, and they end up ignoring the spirit of the law in only following the letter of the law.
4) Professional duty can contradict with the company demands. For instance, a faulty reward system can induce big unethical behavior. “A self-interested agent would choose the course of action which contains the highest returns to them” (Duska 2013). For example, consider the misguided tendency of selling indexed annuities to the elderly. If a company is paying a very high commission for the product, say 16 percent, versus a low commission for a more preferred product at 3 percent, a salesperson may disregard the requirements of the client and assume that the company supports this product by its willingness to pay the compensation. “Sooner or later, people will always give into temptation. The self-interested agent is just responding to the reward system that is already in place” (Federwisch, 2015). According to Federwirsch, one needs to take a look at what is being rewarded.” In general, organizations get exactly what they reward. They just don’t realize that their rewards structures are encouraging dysfunctional or counter-productive behavior or turn a blind eye to the outcome
5) Individual responsibility can fade away under the demands of the client. Sometimes the drive to act unethically comes from the client. Many people expect their accountants to pad their expenses if possible. Many clients expect agents to falsify their applications or claims as well as loan claims. Mitchell concluded the presentation by referring to several suggestions for improvements in the industry so as to encourage the more ethical behavior. “My experience in the financial industry has shown that people who do business are mostly ethical people trying to do the right thing. Most of them try to help their clients achieve their financial objectives” (Federwisch, 2015), he said. First of consumers need to be better informed. “It is one’s responsibility to take control of their financial security” (Federwisch, 2015).
Analyze whether the investment in the truck is profitable.
When we look at the profitability index of the truck, it is 0.79 which is less than 1. Therefore, it is advisable not to invest in the truck since the benefits that will be derived from investing in it will be less than the initial investment.
Explain whether it is more beneficial for Frank to close the business
Do you need an Original High Quality Academic Custom Essay?