2. The Everglo Corp., a manufacturer of cosmetics, is financed with a 50–50 mix of debt and equity. The debt is in the form of debentures that have a relatively weak indenture. Susan Moremoney, the firm’s president and principal stockholder, has proposed doubling the firm’s debt by issuing new bonds secured by the company’s existing assets, and using the money raised to attack the lucrative but very risky European market. You’re Everglo’s treasurer, and have been directed by Ms.

Moremoney to implement the new financing plan. Is there an ethical problem with the president’s proposal? Why? Who is likely to gain at whose expense?

(Hint: How are the ratings of the existing debentures likely to change?) What would you do if you really found yourself in a position like this?