Determine the valuation of long-term liabilities. Donald Lennon is the president, founder, and majority owner of Wichita Medical Corporation, an emerging medical technology products company. Wichita is in dire need of additional capital to keep operating and to bring several promising products to final development, testing, and production. Donald, as owner of 51% of the outstanding stock, manages the company\'s operations. He places heavy emphasis on research and development and long-term growth. The other principal stockholder is Nina Friendly who, as a nonemployee investor, owns 40% of the stock. Nina would like to deemphasize the R&D functions and emphasize the marketing function to maximize short–run sales and profits from existing products. She believes this strategy would raise the market price of Wichita\'s stock. All of Donald\'s personal capital and borrowing power is tied up in his 51% stock ownership. He knows that any offering of additional shares of stock will dilute his controlling interest because he won\'t be able to participate in such an issuance. But, Nina has money and would likely buy enough shares to gain control of Wichita. She then would dictate the company\'s future direction, even if it meant replacing Donald as president and CEO. The company already has considerable debt. Raising additional debt will be costly, will adversely affect Wichita\'s credit rating, and will increase the company\'s reported losses due to the growth in interest expense. Nina and the other minority stockholders express opposition to the assumption of additional debt, fearing the company will be pushed to the brink of bankruptcy. Wanting to maintain his control and to preserve the direction of “his” company, Donald is doing everything to avoid a stock issuance and is contemplating a large issuance of bonds, even if it means the bonds are issued with a high effective–interest rate. Instructions Answer the following questions. Who are the stakeholders in this situation? What are the ethical issues in this case? What would you do if you were Donald? Solution a)Donald and nina are the stakeholders in this situation . b)Ethical issue involved in this case is to Raise additional funds by issue of stock or to raise additonal debts to meet fund requirement. If funds are raised through issue of stock ,Donald stock ownership will be diluted and when bonds are issued ,it will be costlier to a company to raise additional funds. c) Donald can either go for BOOTSTRAPPING where funds are raised by investing the retained earnings of a company and finding a means within a company. Also Donald can also suggest Right issue of shares where shares are offered to existing shareholders at concessional price (lower than market) so that his ownership is not diluted. .

1. Determine the valuation of long-term liabilities.
Donald Lennon is the president, founder, and majority owner of Wichita Medical Corporation,
an emerging medical technology products company. Wichita is in dire need of additional capital
to keep operating and to bring several promising products to final development, testing, and
production. Donald, as owner of 51% of the outstanding stock, manages the company's
operations. He places heavy emphasis on research and development and long-term growth. The
other principal stockholder is Nina Friendly who, as a nonemployee investor, owns 40% of the
stock. Nina would like to deemphasize the R&D functions and emphasize the marketing function
to maximize short–run sales and profits from existing products. She believes this strategy
would raise the market price of Wichita's stock.
All of Donald's personal capital and borrowing power is tied up in his 51% stock ownership. He
knows that any offering of additional shares of stock will dilute his controlling interest because
he won't be able to participate in such an issuance. But, Nina has money and would likely buy
enough shares to gain control of Wichita. She then would dictate the company's future direction,
even if it meant replacing Donald as president and CEO.
The company already has considerable debt. Raising additional debt will be costly, will
adversely affect Wichita's credit rating, and will increase the company's reported losses due to
the growth in interest expense. Nina and the other minority stockholders express opposition to
the assumption of additional debt, fearing the company will be pushed to the brink of
bankruptcy. Wanting to maintain his control and to preserve the direction of “his―
company, Donald is doing everything to avoid a stock issuance and is contemplating a large
issuance of bonds, even if it means the bonds are issued with a high effective–interest rate.
Instructions
Answer the following questions.
Who are the stakeholders in this situation?
What are the ethical issues in this case?
What would you do if you were Donald?
Solution

2. a)Donald and nina are the stakeholders in this situation .
b)Ethical issue involved in this case is to Raise additional funds by issue of stock or to raise
additonal debts to meet fund requirement.
If funds are raised through issue of stock ,Donald stock ownership will be diluted and when
bonds are issued ,it will be costlier to a company to raise additional funds.
c) Donald can either go for BOOTSTRAPPING where funds are raised by investing the retained
earnings of a company and finding a means within a company.
Also Donald can also suggest Right issue of shares where shares are offered to existing
shareholders at concessional price (lower than market) so that his ownership is not diluted.