Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

ETHICAL DILEMMA #1 Sally Cook owned stock in the Graham Corporation, which was a highly profitable cookie manufacturer. Ralph Bossey was a corporation takeover specialist.

image text in transcribed
ETHICAL DILEMMA #1 Sally Cook owned stock in the Graham Corporation, which was a highly profitable cookie manufacturer. Ralph Bossey was a corporation takeover specialist. He would buy large amounts of stock in corporations, drive up the price of the stock, in doing so take over the corporation, sell many of its assets (which were often worth far more than the "book value"), and force the company taken over to issue bonds to pay for the large purchases of its own stock. In effect, the company taken over (the target) replaced equity (stock) with debt (bonds) which legally obligated the target corporation to pay high interest on the debt/bonds it issues. Bossey offered Cook and all other Graham Corporation stockholders double the current market value for their holdings in the Graham Corporation. Cook knew that if she accepted Bossey's offer for her stock that there would probably be layoffs of many employees at the Graham Corporation's plants, as there had been after other Bossey takeovers. This was because the target corporations were so loaded with debt that a larger percentage of corporate income was needed to pay the interest on the bonds. Also, any decrease in the target's income would cause net income after debt payments to be correspondingly lower. This, in turn, could jeopardize future income growth, because research and development would have to be cut. In the highly competitive food business, this would hurt product innovation and nutritional improvements, which were constantly necessary to maintain the market share of health- conscious Americans. Despite all of these factors, Cook's stock would be worth $800,000 instead of $400,000. She could retire or at least work her last few years without a financial worry in the world. Should Cook accept Bossey's offer? What factors should enter into her decision

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Inclusive And Sustainable Finance Leadership Ethics And Culture

Authors: Atul K. Shah

1st Edition

0367759403, 978-0367759407

More Books

Students also viewed these Finance questions

Question

Describe the braingut axis.

Answered: 1 week ago

Question

8. Demonstrate aspects of assessing group performance

Answered: 1 week ago