he president of United Semiconductor Corporation made this statement in thecompany’s annual report:“United’s primary goal is to increase the value of thecommon stockholders’equity over time.”Later in the report, the following announcements were made: a.The company contributed $1.5 million to the symphony orchestra in SanFrancisco, its headquarters city. b.United is spending $500 million to open a new plant in Mexico. No revenueswill be produced by the plant for four years, so earnings will be depressedduring this period versus what they would have been had the company notopened the new plant. c.The company is increasing its relative use of debt. Assets were formerlyfinanced with 35 percent debt and 65 percent equity; henceforth, the financ-ing mix will be 50–50. d.The company uses a great deal of electricity in its manufacturing operations,and it generates most of this power itself. United plans to utilize nuclear fuelrather than coal to produce electricity in the future. e.The company has been paying out half of its earnings as dividends and retain-ing the other half. Henceforth, it will pay out only 30 percent as dividends. Discuss how United’s stockholders, customers, and labor force would react to eachof these actions, and describe how each action might affect United’s stock price.
The president of United Semiconductor Corporation made this statement in thecompany’s annual report:“United’s primary goal is to increase the value of thecommon stockholders’equity over time.”Later in the report, the following announcements were made:
a.The company contributed $1.5 million to the symphony orchestra in SanFrancisco, its headquarters city.
b.United is spending $500 million to open a new plant in Mexico. No revenueswill be produced by the plant for four years, so earnings will be depressedduring this period versus what they would have been had the company notopened the new plant.
c.The company is increasing its relative use of debt. Assets were formerlyfinanced with 35 percent debt and 65 percent equity; henceforth, the financ-ing mix will be 50–50.
d.The company uses a great deal of electricity in its manufacturing operations,and it generates most of this power itself. United plans to utilize nuclear fuelrather than coal to produce electricity in the future.
e.The company has been paying out half of its earnings as dividends and retain-ing the other half. Henceforth, it will pay out only 30 percent as dividends.
Discuss how United’s stockholders, customers, and labor force would react to eachof these actions, and describe how each action might affect United’s stock price.
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