Case-Capital Investment and Ethical Behavior 4 points

Mark Payne, a certified management accountant and controller of Apex Enterprises, has

been given permission to acquire a new computer and software for the companys

accounting system. The capital investment analysis showed an NPV of $100,000.

However, the initial estimates of acquisition and installation costs were made on the

basis of tentative costs without any formal bids. Mark now has 2 formal bids, one that

would allow the firm to meet or beat the original projected NPV and one that would

reduce the projected NPV by $50,000. The second bid involves a system that would

increase both the initial cost and the operating cost.

Normally, Mark would take the first bid without hesitation. However, Arthur the owner of

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the firm presenting the second bid is a close friend. Mark called Arthur and explained

the situation, offering Arthur an opportunity to alter his bid and win the job. Arthur

thanked Mark and then made a counteroffer.

Arthur: Listen, Mark, this job at the original price is the key for a successful year for me.

The revenues will help me gain approval for a loan I need for renovation and expansion.

If I dont get the loan, I see hard times ahead. The financial stats for loan approval are

so marginal that reducing the bid price may blow my chance.

Mark: Losing the bid altogether would be even worse, dont you think!

Arthur: True. However, if you award me the job, Ill be able to add personnel. I know

that your son is looking for a job, and I can offer him a good salary and a promising

future. Additionally. Ill be able to take you and your wife on that vacation to Hawaii that

we have been talking about.

Mark: Well, you have a point. My son is having an awful time finding a job, and he has

a wife and 3 kids to support. My wife is tired of having them live with us. She and I

could use a vacation. I doubt that the other bidder would make any fuss if we turned it

down. Its officers are out of state, after all.

Arthur:Out of state! All the more reason to turn it down. Given the states economy, it

seems almost criminal to take the business outside. Those are the kind of business

decisions that cause problems for people like your son. Required:

Evaluate the ethical behavior of Mark. Should Mark have called Arthur in the first place? What if Arthur had agreed to meet the lower bid price---would there have been any problems? Identify the standards of ethical conduct that Mark may be violating, if any? Write your answer below. Keep it brief and straight to the point.