Read the passage:

Frank Smith has been a plumber in the college town of Turlock, CA for the last thirty years. All the people who know him call him Frankie because he is friendly, social, and charges a fair price for his services. His business has grown because new customers become repeat customers. He has worked hard to support his family and has raised three children who have attended the local school system. However, in recent years, he has had to work overtime to ensure he has the funds to financially support his daughter in the business program at the local state university. He encourages all his children to pursue a college education because he knows it will be valuable in their futures and, as a rule, Frank has never believed in borrowing money. Every time he has purchased something — such as tools, vehicles, equipment, or even his children’s college educations — he has paid in cash.

Frank has been using his plumbing truck for the last 14 years. However, recently it has begun stalling and the mechanic has recommended buying a new fuel-efficient truck rather than repairing his old, gas-guzzling one. Unfortunately, Frank has used all of his money to pay for his living expenses and daughter’s college education. He has explored purchasing a new truck and does not have enough cash saved to buy one outright.

Recently, the Smith family got together for dinner, and Frank started explaining that it was time to forego self-employment in favor of working for a plumbing company because he could not afford to buy a new truck. The family reacted in sorrow, lamenting that Frank would be forced to work for a company when he had been running a successful business on his own for so long.

Answer the following questions:

1. Assume you are Stephanie, research whether there is an ethical problem with Elena calling the bank manager and his wife and getting the loan approved. If there is an ethical issue, how should Stephanie convince her mother that it is inappropriate to call the bank manager and his wife for assistance in getting loan approval?

2. Explain why limited leverage is good for business.

3. Based on the given information, tax rate, and depreciation show the profitability of the project so that Stephanie can convince her father to purchase the truck by borrowing money.

Answer rating: 100% (QA)

1 It will be inappropriate for mother Stephanie to call the bank manager and his wife for assistance in getting the loan approval because the financial analysis itself can help one secure a loan or no... View the full answer