Recommended decision / Why the decision may be difficult / Recommendations to promote ethical choices - Everyone

Taylor is one of three senior managers submitting internal proposals for a capital budgeting project. Only one manager is selected each year to receive funding that can reach up to one million dollars. The last three managers that won the bid were promoted to vice president and given very handsome salary increases. Taylor asked each member of the department to gather information on projected costs and revenue, and was assembling the pieces into a final project budget. At the end of the analysis, Taylor stared at the computer in disbelief. The Internal Rate of Return (IRR) was estimated to come in at 7.5%, but every project approved in the last few years had an 8% IRR or higher. Taylor examined the numbers for a long time and realized that by reclassifying one project expenditure as a normal operating expense instead of a project expense, the projected IRR could be adjusted upwards to 8.15%. Taylor knew the higher IRR would improve the likelihood of getting the funding and the cost reclassification to operations was unlikely to be discovered.

Decision 3 Taylor decided to turn in the proposal based on the higher projected IRR due to the cost reclassification. Consequences of Behavioral Action: The project was funded and, when completed, the IRR came in much higher than expected. Taylor was able to reverse the reclassification by reinstating the omitted expenditure back to the project rather than normal operations and still achieve an IRR of 8% on the project. One year later Taylor was promoted to vice president.

Decision 4 Taylor decided to turn in the proposal with a 7.5% IRR and it was not accepted. Taylor was not promoted.