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
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