One-Day Shades Corp. is considering expanding its Las Vegas manufacturing operations. It can either convert a warehouse that it owns in the suburbs, or it can expand its current plant downtown. After the board of directors approved the expansion, George Wilson, the controller, set about to determine which proposal had the higher net present value. He assigned this task to Helen Guerning, the assistant controller.

She completed her task, which indicated that the warehouse proposal had a negative net present value, but the downtown expansion proposal had a slightly positive one.

Wilson was displeased with Guerning’s report on the suburban warehouse proposal. He returned it to her, stating, “You must have made an error. This proposal should look better.” She suspected that Wilson wanted the suburban warehouse proposal to succeed so that he could avoid his lengthy commute to the city on the days he worked at the expansion site.

She checked her figures and found nothing wrong, although she believed that estimates of property sales values at the end of the investment lives provided by the real estate department were particularly uncertain. She made minor changes to the wording of the report to that effect but left the substance of the report unchanged. Wilson was still angry and demanded a second revision. He told Guerning to double the estimate of the suburban warehouse’s salvage value because he believes that the real estate department is being too conservative and that suburban land values will increase dramatically as the region continues to grow. This change would make the suburban warehouse proposal’s net present value positive and higher than that of the downtown expansion.

Required

a. Was Guerning’s first revision on the proposal for the warehouse proposal unethical? Explain.

b. Was Wilson’s conduct unethical when he gave Guerning specific instructions on preparing the second revision? Explain.

c. How should Guerning attempt to resolve this issue? Should she discuss this issue with anyone outside the organization?