Evaluating an Ethical Dilemma
You work for a small company considering investing in a new Internet business. Financial projections suggest that the company will be able to earn in excess of $40 million per year on an investment of $100 million. The company president suggests borrowing the money by issuing bonds that will carry a 7 percent interest rate. He says, “This is better than printing money! We won’t have to invest a penny of our own money, and we get to keep $33 million per year after we pay interest to the bondholders.” As you think about the proposed transaction, you feel a little uncomfortable about taking advantage of the creditors in this fashion. You feel that it must be wrong to earn such a high return by using money that belongs to other people. Is this an ethical business transaction?
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