The president of Eastern Semiconductor Corporation (ESC) made this statement in the company’s annual report: “ESC’s primary goal is to increase the value of our common stockholders’ equity.” Later in the report, the following announcements were made:
a. ESC contributed $1.5 million to the symphony orchestra in Bridgeport, Connecticut, where it is headquartered.
b. ECS is spending $500 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 not been made to expand in that market. Discuss how ESC’s stockholders might view each of these actions, and how the actions might affect the stock price.