2208FIN_310_1001Module 1

In Chapter 1 of the textbook for the course, the topics of ethics and the law (among numerous other things) were addressed to some extent. In addition, the underlying goal of the business firm as it has evolved over time was discussed at length. In the homework assignment for this first module of the courses, we will provide some background information on two hypothetical companies and then ask that you provide some insights that will integrate these concepts of morality, law, and the overriding goal of the firm. Here is the initial projected information for the two firms for the next five year period:

Company A: 2020 2021 2022 2023 2024
Total Revenues $900,000 $910,000 $920,000 $930,000 $940,000
Total Expenses 850,000 870,000 890,000 910,000 930,000
Company B: 2020 2021 2022 2023 2024
Total Revenues $900,000 $910,000 $920,000 $930,000 $940,000
Total Expenses 890,000 890,000 890,000 890,000 890,000

With respect to operating policies, the two firms are very similar, but they do differ in two important respects, as follows:

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The managers of Company A have the opportunity to hire 100 low-skilled workers at $6 per hour over the five year period, and the expenses listed in the projections above reflect that employment level and wage rate. Company A managers are well aware that the federally mandated minimum wage law requires a wage of $7.25 per hour, but they are well-versed in economic realities and they understand that the $7.25 per hour wage creates a price floor, and that such a price floor will cause the 100 potential workers to be unemployed because their expected productivity is only $6 per hour. In other words, if the company chooses to obey the law, that means that they will rely on more capital-intensive production methods that will preclude the hiring of the 100 employees. The managers want very much to hire the 100 workers, but will not be able to do so if they are required to pay them $6 per hour. For purposes of this assignment, we are to assume that the managers of Company A are certain that they have ways to hire the 100 workers without the knowledge of federal officials or others in society. Said still another way, the managers of Company A see the minimum wage law as an unjust law that violates the human rights of low-skilled workers to be gainfully employed, and they therefore plan to hire the 100 workers and pay them $6 per hour in violation of the law. Again, the total expenses listed in the information above reflect the $6 per hour rate to be paid to the 100 workers.

Company A managers also, due to their philosophical commitment to human rights, understand taxation to be unjust. They understand taxation to be a violation of basic human rights, and that government officials have no moral authority to extract taxes from companies. In addition, they are aware of the relatively serious harm that taxation does to society as a whole by causing serious nefarious allocations of resources, ultimately causing economic booms and busts that are harmful to people in society generally. These managers are therefore committed to violating the tax law, and the total expense numbers listed in the table above reflect this commitment. For purposes of this assignment, again, we should assume that they have ways to evade the required taxes without the knowledge of federal officials or others in society.

The managers of Company B are guided by a popular variation of legal positivism, and therefore have the view that both the minimum wage law and the tax laws are morally valid laws that should be obeyed because they are the law regardless of the harms done by these laws in society generally. The total expense numbers in the table above reflect these beliefs.

Required:

Given your understanding of the appropriate goals of a business firm as outlined in the textbook, your understanding of morality as it pertains to the serious nature of violations of human rights, and your understanding of the importance the effects of the minimum wage law and tax laws on society in general, prepare a report that itemizes and summarizes your reasons for concluding which of the two companies is doing a better job of meeting the appropriate goals of their firm.

In order to assist in formulating your report, you may want to consider the following table (containing several key items from the textbook) as a framework that may be useful in organizing your thoughts on the matter:

Issue/Goal Company A Company B
Shareholder wealth maximization
Income equality in society
Social responsibility
Direction of business activities for society
Timing of benefits
Creating the right image
Inspiring commitment
Encouraging ethics

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