Complete Question:
James Stilton serves as the CEO of RightLiving, Inc., a corporation that purchases life insurance policies at a reduced price from terminally ill individuals and sells them to investors. RightLiving compensates terminally ill patients with a percentage of the future death benefits (typically 65%) and subsequently sells the policies to investors for 85% of the future benefit amount. The patients receive funds to assist with their medical and other expenses, while the investors are assured a positive return on their investments. The difference between the purchase and retail prices represents RightLiving's profit.
Stilton is aware that some sick patients might acquire insurance policies through deceit (by concealing their illness on the application). If an insurance company uncovers such fraud, it will annul the policy and withhold payment. While Stilton is confident that most of the policies he has acquired are legitimate, he recognizes that a few may not be.
Requirement:
What additional ethical dilemmas might Stilton encounter?
Answer with Explanation:
Stilton's ethical challenges include:
- Should he disclose potential fraud to investors prior to executing sales?
- What policies should be established to ensure that legitimate individuals can easily sell their policies, and how would lack of such policies be unfair for RightLiving, Inc.?
- Stilton also faces ethical issues because the business model benefits from the early deaths of clients, which raises moral questions.
The depreciable life of an asset is crucial for the financial manager. Generally, a shorter depreciable life is advantageous, as it leads to quicker cash flow circulation. This concept of depreciation allows for the expense of financial or intangible resources to be allocated over their useful lives. It indicates the extent to which an asset's value diminishes over time. For both taxation and accounting, long-term assets can be depreciated, and the duration allocated to these assets significantly influences the cash flow. Hence, shorter depreciable lives are more favorable compared to longer ones due to the expedited influx of cash for finance managers.
Utilizing the compound interest formula:
The annual compound interest equation, including principal amount, is:
A = P (1 + r/n)ⁿˣ
Here:
A = future value = $95000
P = principal investment amount =?
r = annual interest rate = 0.06
n = frequency of compounding per year = 2
x = duration in years for investment = 0.5
95,000 = P (1 + 0.06/2)¹
95,000 = P (1 + 0.03)
95,000 = P (1.03)
P = 95,000 ÷ 1.03
P = 95,000 ÷ 1.03
P = 92,233.01
Total compounded interest = 92,233.01 - 95,000
Total compounded interest = -2,766.99
A, because is the stress really justified for the money offered by B? My answer would be that stress is always harmful.
The calculation for free cash flow can be summarized as follows:
Revenue 12000000
Subtract: Expense (8000000)
Subtract: Depreciation (1500000)
Earnings Before Tax 2500000
Subtract Tax (750000)
Earnings after tax 1750000
Add Depreciation 1500000
Total Cash Earnings 3250000
Subtract: Change in Working Capital (500000)
Subtract: Asset Purchase (700000)
Free Cash Flow 2050000
Therefore, Free Cash Flow can be computed in this manner.
