The Swiss label maker; value of shares issued for equipment

The afternoon of his return from Switzerland, Benson called Susan Sharp into his office. Susan is Bricker's Controller.

Benson: I wish you had been able to go. We have some accounting issues to consider.

Sharp: I wish I'd been there, too. I understand the food was marvelous. What are the accounting issues?

Benson: They discussed accepting our notes at the going rate for a face amount of $12.5 million. We also discussed financing with stock.

Sharp: I thought we agreed; debt is the way to go for us now.

Benson: Yes, but I've been thinking. We can issue shares for a total of $10 million. The labeler is custom made and doesn't have a quoted selling price, but the domestic labelers we considered went for around $10 million. It sure would help our rate of return if we keep the asset base as low as possible.

Required:

How will Benson's plan affect the return measure?

What accounting issue is involved? Is the proposal ethical?

Who would be affected if the proposal is implemented?