Due to some recent changes to the local environmental air quality laws, the company's large coal-fueled smelting furnace is now operating out of compliance due to high levels of pollutants in the exhaust gases. The regulatory agency has given the company 12 months to demonstrate compliance, after which it will be fined $1,000 per day until the operations meet the regulation. The company has two alternatives. The first alternative is to install air scrubbers to reduce the output pollutant levels. The second alternative is to convert the smelting furnace from coal to natural gas. Both alternatives will meet the current regulatory requirements, but there is a slight concern that the air scrubber solution may not meet future regulatory restrictions. The executive team wants you to perform a financial performance analysis on both alternatives using several different capital budgeting methodologies. The team also is seeking guidance on nonfinancial considerations regarding the company's ethical and social responsibilities related to this decision.

Part 2: Ethical Responsibility

During several visits to the plant, you have overheard some employees and mid-level supervisors discussing the issues related to the smelting furnace and some potential "solutions" to the current regulatory problem. Some of these conversations are troubling because they are suggesting covering up the issue through false or misleading data reporting. Based on these conversations, you feel obligated to discuss the issue of ethical responsibility with the executive team. Be sure to address the following:

• Examine the importance of ethics in managerial accounting.
• Analyze how ethics, both good and bad, can affect the organization as a whole. Consider not only the financial impact but also the direct and indirect impact on stakeholders, such as employees, customers, suppliers, etc.
• Propose at least two recommendations that the company could implement to help ensure high ethical responsibility at all levels of the organization.