Summary: On September 18, Microsoft Corp., now the largest publicly traded company, 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 Redmond, Washington-based 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 Microsoft's more than $1 trillion market value. Application: This article provides an opportunity to discuss capital allocation, Modigliani and Miller's propositions 1 and 2, the market signaling associated with dividends and buybacks, and the efficient market hypothesis, as well as debate recent calls from legislators to curtail share repurchases. Questions: . 1. 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? 2. Why would Microsoft undertake both a share re-purchase and increase its dividend? Why not just one or the other