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Unformatted text preview: Companies could use their excess cash to perform research and development to find new products for their markets. Companies could use their excess cash to acquire other companies to take advantage of economies of scale as a larger entity with less competition. Companies could use their cash to repay debt to lower interest costs and improve their performance during cyclical downturns. If any of the above alternate uses of cash increase the profitability and cash flow of the company, the shareholders benefit through capital appreciation (an increased stock price, for example), as well as the potential increase in dividend payments made possible by the improved performance of the company. If the alternate use of cash also improves the company’s standing in its industry, and positions it for future success, the shareholders benefit from the improve long term prospects of the company. b. Fewer shares in the market would imply that the market capitalization per share is higher, driving up the sto...
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