The president of ABC made this statement in the company’s annual report: “ABC’s

Question

The president of ABC made this statement in the company’s annual report: “ABC’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 million to the symphony orchestra in Chicago, IL, its headquarters city.

b) The company is spending $800 million to open a new plant and expand operations in South Vietnam. No profits will be produced by the Vietnamese operation for four years, so earnings will be depressed during this period versus what they would have been had the decision not been made to expand in South Vietnam?

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, ABC plans to shift its emergency funds from Treasury bonds to common stocks.

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

Explanation / Answer

A.since the company has invested in a new company which is in its head quartes city it may prove to b profitable for it bcoz the companyy may b well known there . so the stock holders equity will increase
b. for the second process since no profits will b produced so there may b chances for the share holder equity to fall down .
C.the stock holders may not take the third action positively as they should not have taken the stocks kept for emergencies for common stocks as these funds may prove to be very useful during crucial times ..

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