C equity securities typically carry more risk than

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Unformatted text preview: is affected by the expected future cash inflows due to dividend payments and capital appreciation, the price of Philip Morris (now known as Altria Group) stock rose in response. After the $6 billion stock buy­back is completed, the company will have fewer shares outstanding in the market, and it will increase the future EPS and the book value of the company’s stock. Further, the company is raising the quarterly dividend by almost 20%, which means higher­cash inflow to the existing shareholders. All of these are positive signs and would lead to an increase in the price of Philip Morris’s common stock. However, the company’s credit rating will go down, primarily due to the fact that after paying an increased dividend and executing a $6 billion stock buy­back plan, Philip Morris may be low on cash, which could affect its short­term solvency position. Therefore, the rating agencies would perceive Philip Morris as a risky company. The higher the risk, the lower the credit rating. ID12–4 a. Companies could use their cash to invest in the latest technology to improve the productivity of their manufacturing operations....
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This homework help was uploaded on 03/03/2014 for the course ACCT 5053 taught by Professor Staff during the Fall '08 term at Oklahoma State.

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