ACCA Strategic Professional · Advanced Financial Management · The role and responsibility of senior financial executive/advisor
Zeta plc's finance director is evaluating a project with a positive NPV only if the cost of capital is set at 8%. The board's own estimate of the risk-adjusted cost of capital is 11%, at which NPV is negative. The chief executive, keen to win approval, asks the finance director to present the 8% figure. Which action is most consistent with the finance director's ethical duty?
The finance director should present the supportable 11% analysis, show the sensitivity of NPV to the discount rate, and escalate internally if pressured to misstate it. Selective emphasis or deferring to the CEO breaches integrity and objectivity, while immediate resignation skips proper resolution steps.
- APresent 8% because the CEO is the superior and has authority over assumptions
- BPresent both rates but emphasise only the 8% result in the summary
- CPresent the 11% analysis honestly, explain the sensitivity to the discount rate, and escalate if pressured to misstate itCorrect
- DResign immediately without discussing the matter with anyone
Explanation
Integrity and objectivity require the adviser to use supportable assumptions and not allow pressure to bias the analysis. Presenting the honest 11% result with sensitivity analysis is correct, escalating internally if pressure continues. Selective emphasis is misleading, and immediate resignation skips the normal resolution steps.
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