Read Ethical Dilemma: It's All Chinese to Me

If you were Terry, what would you do?

Should you invest in a company that might knowingly use underage labor, ignore workers' rights, or pay bribes to foreign governments?

- Finance eBook: Principles of Finance 411 11 '11 '11 11 411 > > > Amortized Loans Questions Problems Computer-Related Problem Appendix 9A Appendix 9B Ch 10: Valuation Concepts Ch 11: Risk and Rates of Return Part 4: Corporate Decision Making Part 5: Investor Decision Making Jump to Page 326 330 331 340 340 342 345 393 443 649 328 818 M < PREVIOUS PAGE 327 eBook: Principles of Finance B ETHICAL DILEMMA LIA It's All Chinese to Me Terry Zupita is currently consid- ering how to invest the modest amount of money she recently inherited ($48,000). Based on her knowledge of different types of investments, as well as the advice of friends, Terry thinks that she should invest her inheritance in a long-term U.S. Treasury bond that promises to pay her $3,690 interest every six months for 10 years. However, today at lunch, Terry asked her best friend Mike how he would invest the money. Mike responded that he thought she could invest in something other than the T-bond and earn a much higher rate of return. In fact, he told Terry that he was at a company social a few nights ago where he overheard a few people talking about a U.S. automobile manufacturer that is partnering with the Chinese govern- ment to open a manufacturing operation in Shanghai. The firm, named Universal Autos (UA), would have exclusive rights to manufacture U.S. automobiles in China. One of the men involved in the conversation stated that he thought the arrangement presented a huge opportunity for UA to increase its profits substantially during the next 10 years, which should translate into significant increases in the company's stock price. All of the other persons involved in the discussion agreed. Intrigued, Terry thought it would be a good idea to Q (? TT Quick Tour Print Search Annotations Accessibility Bookmark advice from her friends and relatives. One friend advised against UA as an investment because she had heard from another friend that the company does not adhere to the same labor practices as companies. do in the United States. Another friend advised against. the investment because workers have no union repre- sentation, like those who work for automobile manu- facturers in other countries. And Terry's uncle, who works in the U.S. State Department, said that he had heard that UA made a huge payment, which he called a bribe, to the Chinese government before the deal was signed. Her uncle thought that the payment UA made to the government might be considered illegal in the United States. However, Terry's boyfriend, who hap- pens to be Chinese, thinks that she should invest her money in UA. According to information provided by his family and friends in China, the agreement between UA and China represents a historic business deal that the Chinese government intends to support fully, so there is little risk associated with the investment. In fact, according to her boyfriend, Terry's $48,000 could grow to $112,500 in 10 years if she invests it in UA. If you were Terry, what would you do? Should you invest in a company that might knowingly use underage labor, ignore workers' rights, or pay bribes to foreign NEXT PAGE 329 ;