ABC Ltd is a mid-sized telecom company planning to increase its sales substantially in order to hit the big league. The CEO of the company is having a strenuous time handling different divisions, strategizing and balancing competing demands. The job in hand seems impossible to handle. Towards shepherding the company to the big league, he attended a short-term programme at the Indian Institute of Management Ahmedabad, which not only energized him but also changed his thinking in the right direction in his quest towards taking the company forward. One of the key takeaways of the programme was the emphasis on value maximization and concentration on shareholders’ interests. He learnt, belatedly he felt, that a company, and by inference its managers, must direct all their efforts towards maximizing the value of the company. He also learnt that value is determined by future free cash flows, which must be discounted at the risk-adjusted cost of capital (COC). The implication is fairly obvious: in order to increase value, the company must either increase free cash flows or reduce COC. 

During the next few months, the CEO took the following decisions amongst many others:

Question

1. The company invested ₹60 million in corporate social responsibility (CSR) projects which includeda. maintenance of greenery outside the Mumbai airport,

b. funding an orphan centre,

c. starting a school for underprivileged children and

d. establishing library facilities in villages around its factory.

2. The company invested in a project that had negative cash flows in the first three years.

3. The company dropped prices for its voice calls and data usage that reduced its margins significantly. 

Given that none of these projects apparently increase its value, why did the CEO take the listed decisions? How did he justify these decisions to the company’s board of directors? 

What factors could have prompted these actions, and what could have been the thought process of the management of ABC Ltd? 

Please consider each decision independently