Stock and Treasury Bonds

1-11 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 $500 million to open a new plant and expand operations in China. No profits will be produced by the Chinese operations for 4 years, so earnings will be depressed during the period versus what they should 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 US 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.
ANSWER:
A. B. TRANSACTION B is an expense, in a sense that the SSC Company is spending much money for expansion and couldn't gain a single profit. So it is a loss in the part of the company that could affect the stock price. C. Shifting the company's emergency funds from treasury to common stock will gave the company a good effect. US treasury bonds also pays the company with the interest. then in the future, the treasury bonds will be shift to common stock. by this time the common stock shareholders can sell its stock in order to raise the capital as well as the stock price for investment and expansion.

1-13 Edmund Enterprises recently made a large investment to upgrade its technology. While these improvements won’t have much effect on performance in the short run, they are expected to reduce future costs significantly. What effects will this investment on Edmund Enterprises’ earnings per share this year? What might this investment