Scruffy Murphy is the president and principal stockholder of Scruffy’s Bar & Grill, Inc To expand, the business is applying for a $350,000 bank loan. To get the loan, Murphy is considering two options for beefing up the owners’ equity of the business:
Option 1. Issue $200,000 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 $200,000 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.
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?
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