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Spartan Industries - Part Two: Fowands the end of Oetober as you wene finishing the quarterfy SFC report on insider stock activity, Mr. Tumer (Gour
Spartan Industries - Part Two: Fowands the end of Oetober as you wene finishing the quarterfy SFC report on insider stock activity, Mr. Tumer (Gour boss) happened to walk into your office. Jokingly you ask him if he thought the cempany has going under since you woticed he recently sold a significant artaunt of his Sparian stoek. Tumer. replicd that no, he just felt it prudent to diversify his holdings since so much of his funds were invested in the company. I fe then asked how the analysis was coming on the water heater project. Your rosponse was that you should have it in a day or 39. You completed the analysis and found the water heater project mects alf the board's capital investment. guidelines. However, the solar lighting projeel and the central vac project both create more value for the shareholders since the net present value of the anticipated cash flows is larger than that of the water heater project. For this reason, you plan to recommend the board adopt these two projects and not. pursue the water heater project. The next day Mr. Turner stopped by your office to sce fow you were coming on the analysis and was very disturbed when you told him of your planned recommendation. Tumer stated that he believes very strongly in the project and wants the company to pursue it. He further indicated that everything in the analysis of all five projects is based merely on projections and there is no guarantee that any of them will actually materialize. Given that, he told you to adjust the assumptions of cither the water heater project. or the two projects you intend to recommend and - make the water heater project look good! Make it happen was his last words to you. Mr. Turner left you with the impression that if you don't "make it happen your job might be on the line. You found this to be very disturbing but Turner was right about one thing. All the projects were. cvaluated based on the projections made by the various departments involved, as well as your own. If those projections are wrong. your recommendation may also be wrong. So you decide to take a closer look at the project. You had not really checked out the small entrepreneurial company (Energy One) from which Spartan was going to acquire the new energy efficient technology so you gave Rich Perkins. an old buddy in the venture capital business, a call to see if he knew anything about this young company. What you discovered was that while Rich was not involved in Energy One he was familiar with it. Over a year ago the owner had contacted him about the possibility of investing capital into Energy Orne to pay off the original investors and provide much needed capital for the company to build the facilities necessary to produce their own high tech water heaters. The venture capitalist declined to get involved becanse the size of the upfront capital investment was too large for him but he felt the idea had merit. Near the end of the conversation, he said if I wanted more information I should talk to my boss. Al Tumer, since he heard through the grapevine that he might be one of the silent investors in the company; You then furn your attention to reviewing the water heater information provided to you by the various departments as well as your own calculations. After careful study, it appears the results of your previous analysis secm reasonable and therefore your recommendation should remain the same. What would you do? our task is to prepare a (typed, double-spaced) response concerning. I. The ethical issues involved in e case and 2. The actions (or no actions) that you would take. Be sure to supply information nceming how or why you arrived at your decision(s), including at least two outside sources to support ir decision. Bring your response in during the regular exam period. Sparrati Indiefries - Part. Twot Jarner (your hers) happened to walk inso your ottice. Jokingly you ask hirm if he doopht the corvpany war grite under sinbeyou noticed he recerily sold a sigaifceant amount of hisispartan stock. Turner. roples that mo he jue fele it prident to diverafy has holdingesince sp much of las funds were invertcd in the exengany. Ife then asked how the analylis was coming on the water heater project. Your respenie was that you should have it in a day or 30 . You complesed the analysis and found the waser healer projcet mects all the boart's capial investimen! guide ines. Hovever, she wolar Iighting project and the central wae proycct both create mote value for the chareboldera since the net present value of the anticipated cash flows is larger than that of the water heater neojest far this resoon. you plan to recommend the boord adopt these two projects and not purse the vater beaser ficoject. The nizd day Mr. Tumer aropped by your othee to see how you were comine on the analysis and was: very diaturticd when you told him of youf platined rocommiendation. Therserstated that he believes very. peroagly in the project and wanls the coenpany to purse if. He further irdicated that everything in the azalysis of alf five projects is based merely on projections and there is foe gruarninee that any of them will actually maferialize. Given that, he fold you to adjust she aisumptions of eithet the water heater project. of the two projects you indend to recommend and - make the water heater project look goodl Make it laspeg was his list words to you. Mr. Turner left you with the impression that if you don't "make it: happen" your jote mieht be on the line. You found fhis to be tery disturbing but Turtier was right about one thing. All the projects were cvaluated basod on the projections made by the various departments ityolved, as well as your owm. If. those projectiots are wrong, your recommendation may alse be wrong. So you decide to take a closer: look at the pueject. You had pot rcitly checked out the small entreprencurial compeny (Finetgy Onc) from which Spartan was going fo acquire the new energy efficient fechnology so you gave. Rich Perkins. an old huddy in the yentare captal busines, a call to see if he knew anything about this young cosapany, What you discovered was that while Rich was not involycd in Energy. One he was familize with it. Over a ycar ago the owber had contacted him about the possibility of investing capital into Encrgy One to pay off the original inveitors and proyide much needed captal for the company to build the facilitics fecersary 10 produce their own high tech water heaters. The venture capitalist declined to get involved bccause the sime of the spfront capital investment was too Large for him but he felt the ideat had merit Near the end af ehe coaveration, he said if I wanted riore information I:should talk to my boss, Al Tianer, since he hearu through the gripevine that he might be one of the silcterinvestors in the company. You then tum your antention to reviewityg the waler heater information provided to you by the various departmenti as well is your awn cilculations. After careful study it appears the results of your previous analysis sectn reavorable and therefore your recominendation should rentin the satme- Whal wothld you de? Your task is to prepare a (ty pcul, double-spaced ) rusponse coaceming 1. The ethical issues involved in the ease und 2. The actions (or no actions) that you wostd take. Be sure lo supply infomation concering how of why you arrived at your deciston(s). inclading at leat tywo outside sources lo stuport. your decitint. Bring your rusanse in during the regolar exnm period
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