The president of Southern Semiconductor Corporation (SSC) made this statement in the company’s annual report “SSC’s primary goal is to increase the value of our common stockholders' equity.” Later in the report the following announcements were made: a. The company contributed $1.5 million to the symphony orchestra in Birmingham, Alabama, its headquarters city. b. The company is spending 5500 million to open a new plant and expand operations in China. No profits will be produced by the Chinese operation for 4 years, so earnings will be depressed during this period versus what they would have been had the decision been made not to expand in China. c. The company holds about half of its assets in the form of U.S. Treasury bonds, and it keeps these funds available for use in emergencies. In the future, though, SSC plans to shift its emergency funds from Treasury bonds to common stocks. Discuss how SSC’s stockholders might view each of these actions and how the actions might affect the stock price.

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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250
BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250

Solutions

Chapter
Section
Chapter 1, Problem 9Q
Textbook Problem

The president of Southern Semiconductor Corporation (SSC) made this statement in the company’s annual report “SSC’s primary goal is to increase the value of our common stockholders' equity.” Later in the report the following announcements were made:

  1. a. The company contributed $1.5 million to the symphony orchestra in Birmingham, Alabama, its headquarters city.
  2. b. The company is spending 5500 million to open a new plant and expand operations in China. No profits will be produced by the Chinese operation for 4 years, so earnings will be depressed during this period versus what they would have been had the decision been made not to expand in China.
  3. c. The company holds about half of its assets in the form of U.S. Treasury bonds, and it keeps these funds available for use in emergencies. In the future, though, SSC plans to shift its emergency funds from Treasury bonds to common stocks.

Discuss how SSC’s stockholders might view each of these actions and how the actions might affect the stock price.

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