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solutions - College of Business Management Law and Finance...

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College of Business, Management, Law and Finance PART A: MULTIPLE CHOICE QUESTIONS……………………………………..15 Mark 1. d 2. a 3. c 4. d 5. d 6. b 7. c 8. c 9. d 2. a 3. c 4. d 5. d 6. b 7 c 8. c 9. d 10. a PART B: ANSWER ONE OF THE FOLLOWING QUESTIONS……………..…20 Marks 1. a) See the major types of law discussed in Chapter 1 (especially constitutions, statutes, common law, administrative regulations and decisions, and treaties). b) See the "Legal Reasoning" secon of Chapter 1 for discussion of the role courts play in making and interpreting law. That section also discusses two important methods of legal reasoning: case law reasoning and statutory interpretation. 2. a) The ethical issues here sound suspiciously like those that Enron and Arthur Andersen faced. They include an off-balance sheet partnership created purely to generate short-term cash flow at the expense of long-term profits, recognizing as current income earnings that will not be earned in the current period, resorting to economic threats to revoke consulting contracts if an auditor balks at booking income, having a conflict of interest by receiving a high salary and other compensation for doing a deal not in the firm’s best interest, and shredding evidence of illegal conduct. Most of these are illegal actions as well. b) Students should use the Guidelines for Ethical Decision Making that are listed in Figure 1 on page 88 and explained on pages 88 to 94. They should consider all four ethical theories explained in the textbook, including profit maximization and utilitarianism. Students should have no problem concluding that all of the suggested acts are unethical and most are illegal under any ethical theory. A profit maximizer would obey the law and do only acts that are in the long-run interest of the firm. A utilitarian would find that the social costs of such a partnership would outweigh the gains to society. A rule utilitarian may have a rule not to do anything illegal that is not in the best interest of the firm. A rights theorist would put N-Rot’s right to have employees act it its best interest above the employees’ right to act in their selfish interests. Kant’s categorical imperative suggests that one would have a universal rule by which employees act in the interests of the employer, not their own interest. A believer in
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