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Case 2.7 Ethical Dilemma

In: Business and Management

Submitted By kayabonker
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Case Analysis 2-7: Milton Manufacturing Company
Milton Manufacturing Company is a closely-held company has been in business since 1999 when its President Irv Milton first opened the business with its primary operations in Long Island City, New York and factory branches and warehouses in surrounding areas. The business had increased revenue over its first ten years of business from $500,000 in its first year to $5 million in 2008.
Facts
However, in 2009 revenues declined to $4.5 million along with net cash flows from all activities declining in 2009 as well. Overall capital expenditures for the company have been continually increasing by 26% each year. Milton had planned on borrowing $20 million in the fourth quarter of 2010 from the credit markets. In 2010, current cash flow is expected to increase due to higher projections of revenue and cash collections from the business—and therefore selling and producing more products than currently are. Therefore, when Irv Milton meets with Ann Plotkin, the CAO to discuss plan proposals to deal with these changes in the most effective way possible.
Unconcerned about the cash flow decrease, the CAO is more concerned about remaining qualified for the expected $20 million loan and suggests a plan that will put a temporary cap on capital expenditures for 2010 such that the 26% annual increase in capital expenditures will not be an issue this year. The CAO suggests that they be limited to the amount of capital expenditures in 2008, and for no reason can they be any higher. Although there is concern by Irv Milton on the possible negative effects this could bring—the CAO, Ann Plotkin convinces Milton it is the best policy to take on given the situation at hand and that it will help to ensure that the company will still qualify for the desired $20 million loan in the near future.

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