Scruffy Murphy is the president and principal stockholder of Scruffy's Bar&Grillinc. To expand, the business is applying for a $250,000 bank loan

Scruffy Murphy is the president and principal stockholder of Scruffy's Bar&Grillinc. To expand, the business is applying for a $250,000 bank loan. To get the loan, Murphy is considering two options for beefing up the owners' equity of the business: Option 1. Issue $100,000 of common stock for cash. A friend has wanted to invest in the company. This may be the right time to extend the offer. Option 2. Transfer $100,000 of Murphy's personal land to the business, and issue common stock to Murphy. Then, after obtaining the loan, Murphy can transfer the land back to himself and zero out the common stock. 

Requirements Use the ethical decision model in Chapter 1 to answer the following questions: 

1. What is the ethical issue? 

2. Who are the stakeholders? What are the possible consequences to each? 

3. Analyze the alternatives from the following standpoints: (a) economic, (b) legal, and (c) ethical. 

4. What would you do? How would you justify your decision? How would your decision make you feel afterward? 

Evaluation of ethical decisions 

Ethical decisions are those decisions that are morally correct and involve making decisions that are just and lawful. 

1. Ethical issue in the given situation 

The owner of the business has to decide whether borrowing Option 1- $100,000 from his investor friend to issue common stock is ethical or Option 2- to put in his personal funds to boost up common stock until the loan is obtained and then taking back his personal money out of the business is ethical. 

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The stakeholders are those who will be affected by the decision. In the given situation the stakeholders are the owner of the business, the investor friend, and the bank to which the loan has been applied to. 

If the owner issues commons stock by borrowing from his friend than the friend will be a stockholder in the owners' company and if he puts his personal funds he will be the only stock owners but by pulling out the personal funds later on he will be jeopardizing the company's business operation for his personal gain The friend of the owner will be a stock owner in the company if he invests his funds in the business 

The bank will be able to negotiate a loan to increase the operations of the bank services 

3. Economical, legal and ethical standpoints 

An economical factor that can affect the decision is that the owner will be the sole stockholder in case he puts his personal funds in the business and he will not have to share the profits of the business with other investors 

The legal factor which affects the decision is if the bank comes to know about the fraud as suggested in option 2, the owner may have to face legal action Ethical factor which affects the decision is that even if the owner gains economically by using option 2 of investing his personal funds and then taking it back, he has to decide if this action is morally correct. 

4. Decision 

It would be better to use Option 1, issue common stock to the investor than going in for Option 2, as it is morally correct and does not involve cheating the bank by boosting up the common stock to apply for the loan.