2. On September 18, Microsoft Corp. said it plans to buy back as much as $40 billion in stock and raise its dividend 11%, maintaining its record of sharing its flood of cash with shareholders. This is the third time the software giant has authorized a buyback plan of that size in the past six years. The announcement of the buyback follows the company's strong earnings growth from a bet on cloud-computing that helped it beat Wall Street estimates in the fiscal fourth quarter, which ended June 30. Sales rose 12% and profit soared 49% from a year earlier. The company stated that it was on pace to reach the end of its 2016 share-buyback program within a few months. The company had $11.4 billion of that program remaining as of June 30. The newly announced buyback represents about 3.8% of Microsofts more than $1 trillion market value.

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Based on the signaling hypothesis of stock repurchase, one could argue that the significant return of capital was a signal that management does not have positive NPV projects in which to invest. However, the shares rose 1.2% on the announcement. Why do you think this is the case? Why would Microsoft undertake both share repurchases and increase its dividend? Why not just one or the other? Please discuss