6.3 Discussion: The Goal Debate (Response)

Getting Started

Since the 1970s, the assertion the ultimate purpose of any publicly held corporation is to maximize shareholder wealth has come under increasing fire. Many companies and their executives still hold to this tenet, and it is still taught as a guiding principle in major business schools around the world. However, alternative views are gaining acceptability in both professional and scholarly circles. In fact, some scholars have gone so far as to suggest there really isn’t a conflict between social and financial goals at all. Research continues to emerge supporting the idea that the pursuit of so-called “socially responsible behavior” may not only be morally good but also financially advantageous. 

Upon successful completion of this discussion, you will be able to:

• Evaluate the ethical and financial implications of governance and agency problems.
• Analyze the appropriateness of various alternative primary goals for public corporations.

Resources

Background Information

Corporate social responsibility (CSR) can been defined as “discretionary actions undertaken by companies intended to advance social issues” (Richardson, Welker, & Hutchinson, 1999, p. 18). CSR has been the subject of heated debate since at least 1932, when Merrick Dodd (1932) wrote, “For Whom are Managers Trustees?” Citing the philanthropic efforts of several companies, Dodd wrote about a new view of the corporation that was emerging, “a view of the business corporation as an economic institution which has a social service as well as a profit-making function” (p. 1148).

The idea that corporate social responsibility could actually be a profitable undertaking, however, is one of the most hotly debated topics in all of social science (Kolstad, 2007). Literally hundreds of studies have now been conducted on the relationship between corporate social responsibility and organizational performance, with little consensus. Nevertheless, by the turn of the century, this idea had fully taken hold in the professional world. In an article titled “How Good Should Your Business Be?” the Economist (2008) noted for most modern managers “the only real question about CSR is how to do it” (p. 12). 

References

Dodd Jr., E. (1932, May). For whom are corporate managers trustees? Harvard Law Review, 45(7), 1145–1163. doi:10.2307/1331697

How good should your business be? (2008, January 19). The Economist. 

Kolstad, I. (2007). Why firms should not always maximize profits. Journal of Business Ethics, 76(2), 137–145. 

Richardson, A. J., Welker, M., & Hutchinson, I. R. (1999). Managing capital market reactions to corporate social responsibility. International Journal of Management Reviews, 1(1), 17–43. https://doi.org/10.1111/1468-2370.00003

Instructions

1. Review the rubric to make sure you understand the criteria for earning your grade.
2. In your textbook, Analysis for Financial Management, read Chapter 7, “Discounted Cash Flow Techniques.”
3. Study the Web article “The CEOs of nearly 200 companies just said shareholder value is no longer their main objective”   https://www.cnbc.com/2019/08/19/the-ceos-of-nearly-two-hundred-companies-say-shareholder-value-is-no-longer-their-main-objective.html  
4. Download and review Higgins Chapter 7 Slides to help you further understand the chapter concepts.
5. Select an initial post made by one of your classmates in the previous workshop stating their position as to what primary goal a publicly traded corporation should pursue. Copy the initial post to the beginning of your response, and craft a response refuting their arguments. 
6. Explain why you disagree with their positions. Note: it is not important whether you actually disagree or not. Instead, your goal is to construct a well-supported, logical counterargument, demonstrating your understanding of an opposing perspective.  
7. Reference at least one biblical principle with a specific Bible verse that you feel is relevant to your argument. For instance, review the reflection for this workshop (6.1 Exercise), and consider God’s priorities in the use of financial resources. 
8. Support your counterargument with appropriate sources. Use your textbooks and search OCLS for relevant scholarly sources to support your position. Your post should include at least one academic source that is properly cited.
   1. For questions on APA style, go to OCLS APA Writing Styles Guides.
9. Your post is due by the end of the workshop.

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6.4 Assignment: Spreadsheet Exercises

Getting Started

Despite the claims of many scam artists and get-rich-quick gurus, there are very few real secrets to finance. However, if there is any special magic to be acquired through a study of finance, it would have to be the time value of money. The principles of the time value of money can take a modest salary, combined with discipline and time, and turn it into a considerable pile of wealth. The world’s wealthiest people understand the incredible power of compound interest and the time value of money. It is also the basis for powerful discounted cash flow techniques that are essential to good decision making in business.

Upon successful completion of this assignment, you will be able to:

• Understand the basic principles of time value of money.
• Calculate present values, future values, and internal rates of return.
• Analyze annuity and perpetuity applications.
• Apply discounted cash flow principles and techniques to capital-budgeting problems.

Resources

• Textbook: Analysis for Financial Management
• Website: Connect
• File: Higgins Chapter 7 Slides
• File: Assignment 6.4 Workbook
• File: Workshop Six Practice Problems Workbook
• File: Time Value of Money Cheat Sheet

Background Information

“Capital budgeting” is the process of evaluating major, strategic investments. Every business of any significant size has a capital budgeting process. Like other critical business processes, it can be measured and improved, and it can either serve as a competitive advantage or a significant obstacle to success.

Good capital budgeting processes involve the use of discounted cash flow techniques based on the principles of the time value of money. Your understanding of these principles and techniques and the ability to apply them effectively make you extremely valuable to any organization. It can separate you from the pack. Furthermore, these principles can radically alter your perspective on personal finance, and possibly enable you to change the financial direction of your entire family.

With this assignment, you will complete a series of short exercises designed to help you develop your skills with time value of money principles and techniques and to apply them to real-world capital-budgeting decisions. 

Instructions

1. Review the rubric to make sure you understand the criteria for earning your grade.
2. In your textbook, Analysis for Financial Management, read Chapter 7, “Discounted Cash Flow Techniques.”
   1. Download and review Higgins Chapter 7 Slides to help you further understand the chapter concepts.
3. Study the provided practice problems and solutions in the Workshop Six Practice Problems Workbook to help you better understand the processes used to analyze financial statements. Review the Time Value of Money Cheat Sheet provided for the formulas and functions you can use to complete the calculations. 
4. Using the Assignment 6.4 Workbook (course exclusive), complete all 10 of the following problems:
   1. Time Value of Money – Single Sums: Problems 1 and 2
   2. Rate of Return: Problems 3 and 4
   3. Perpetuities and Annuities: Problems 5 through 8
   4. Capital Budgeting: Problems 9 and 10
5. Be sure your Excel spreadsheet is prepared in a professional manner, with answers clearly indicated and all your calculations shown. Full credit will not be given if your process for arriving at the answer is not fully displayed, including any intermediate steps.
6. When you have completed your assignment, save a copy for yourself and submit a copy to your instructor by the end of the workshop.

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6.5 Assignment: Mini Case Study

Getting Started

Throughout this course, you have strengthened your understanding of financial principles. You have learned how to prepare and interpret financial statements and how to develop financial plans to support decision making. Capital budgeting involves both financial planning and decision making. Such decisions are often the most difficult and high-stakes a business will face. So, it is time to get some practice. This mini case presents a common real-life situation: evaluating a major investment to decide if it is a wise use of the company’s limited resources.

Upon successful completion of this assignment, you will be able to:

• Determine the relevant cash flows for a capital-budgeting analysis.
• Apply discounted cash flow principles and techniques to capital-budgeting problems.

Resources

• Textbook: Analysis for Financial Management
• Website: Connect
• File: Higgins Chapter 7 Slides
• File: Workshop Six Practice Problems Workbook
• File: Assignment 6.5 Workbook

Background Information

In this workshop, you learned techniques for analyzing capital-budgeting problems using time value of money principles. These techniques are very common in practice, but relatively few understand how to properly apply them, and the consequences of a mistake can be deadly. In the real world, capital budgeting requires discerning, meticulous people who can ask tough questions, challenge assumptions and stay objective. This exercise is designed to give you an opportunity to do the cold analysis of capital budgeting, applying these techniques to a real-life scenario. 

Instructions

1. Review the rubric to make sure you understand the criteria for earning your grade.
2. Using the Assignment 6.5 Workbook (course exclusive), prepare a financial analysis for Fresnel Enterprises: 
   1. Create pro forma income statements for each year of the proposed project.
   2. Create a working capital analysis, showing needed working capital investments for each year of the proposed project.
   3. Determine the free cash flow expected for each year of the project.
   4. Calculate the project’s NPV, BCR, and IRR.
   5. Finally, based on your analysis, briefly explain whether you believe the company should pursue this project and why.
3. Be sure your Excel spreadsheet is prepared in a professional manner, with answers clearly indicated and all your calculations shown. Full credit will not be given if your process for arriving at the answer is not fully displayed, including any intermediate steps.
4. When you have completed your assignment, save a copy for yourself and submit a copy to your instructor by the end of the workshop.