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Assume that you are the Chief Financial Officer of a medium to large company

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Assume that you are the Chief Financial Officer of a medium to large company. It is April and the Chief Executive Officer has just returned from a meeting with the company's bankers. She calls you to her office to discuss the results of the negotiations. As things stand, the company requires a significant injection of capital, which will be used to modernize plant and equipment. The company has been promised new orders if it can produce goods to an international standard. Existing machinery is incapable of manufacturing at the required level of quality. Whilst the bank is sympathetic, current lending policies require borrowers to demonstrate an adequate current and projected cash flow, as well as a level of profitability sufficient to indicate a capacity to make repayments from an early date. The problem is that, largely because of some industrial problems, the business has not been performing at a level which realizes even its 'unimproved' potential. Strictly speaking, the figures would not satisfy the bank's criteria.

The CEO reminds you of all of this and then mentions that she has told the bank that the company is in excellent shape, that she believes that its financial results will meet the criteria and that she will ask the Chief Financial Officer (you) to deliver a financial report to the bank at the beginning of the next week. She tells you that it is up to you to decide upon the contents of that report.

Two final pieces of information:

1. Failure to get this financing is almost certain to lead to major employee layoffs, which would probably include your position and hundreds of others. You know many of these employees, including your brother who works in purchasing.
2. You have recently purchased a home - leveraged with a significant mortgage. You need this job to make ends meet for your family. In fact, you will likely lose the house if you lose your job.

Things to consider (really imagine how much pressure you would feel!):

• Does it really matter if the CFO massages the figures, perhaps factoring in notional income arising from projected new sales that will be made once the new plant is operational? After all, the projected cash flows are the really important thing to consider.
• Does the CFO have a duty to do everything possible to ensure the preservation of jobs at the factory?
• Is the self-interest (new mortgage) of the CFO a justifiable concern?
• How should the CFO tackle the matter of loyalty to the CEO?