The president of Maluwana Pvt made this statement in the company’s annual report: Maluwana’s primary goal is to increase the value of the common stockholders’ equity over time.” Later on in the report, the following announcements were made: a) The company contributed K3.7million to the symphony orchestra in Chelstone, Lusaka its headquarters city. b) The company is spending K750 million to open a new plant in Tanzania. No revenues will be produced by the plant for 5 years, so earnings will be depressed during this period versus what they would have been had the decision not been made to open the new plant. c) The company is increasing its relative use of debt. Whereas assets were formerly financed with 35 percent debt and 65 percent equity, henceforth the financing 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. Plans are to utilize nuclear fuel rather than coal to produce electricity in the future. e) The company has been paying out half of its earnings as dividends and retaining the other half. Henceforth, it will pay out only 30 percent as dividends. Discuss how each of these actions would be reacted to by Maluwana’s stockholders and customers, and then how each action might affect Maluwana’s stock price.
The president of Maluwana Pvt made this statement in the company’s annual report: Maluwana’s primary goal is to increase the value of the common
a) The company contributed K3.7million to the symphony orchestra in Chelstone, Lusaka its headquarters city.
b) The company is spending K750 million to open a new plant in Tanzania. No revenues will be produced by the plant for 5 years, so earnings will be depressed during this period versus what they would have been had the decision not been made to open the new plant.
c) The company is increasing its relative use of debt. Whereas assets were formerly financed with 35 percent debt and 65 percent equity, henceforth the financing 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. Plans are to utilize nuclear fuel rather than coal to produce electricity in the future.
e) The company has been paying out half of its earnings as dividends and retaining the other half. Henceforth, it will pay out only 30 percent as dividends.
Discuss how each of these actions would be reacted to by Maluwana’s stockholders and customers, and then how each action might affect Maluwana’s stock price.
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