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Recommendation:
United States Tobacco (UST) should increase the leverage in its capital structure by incurring $1 billion in debt. Debt financing will increase the value of the firm by creating a tax shield and allow UST to repurchase approximately 25 million shares, which in turn, will enable UST to increase the amount of dividends per share without increasing the total amount of dividends paid. UST needs to re-gain industry analysts’ confidence by using the entire $1 billion to repurchase shares, and in 2-3 years it should consider increasing its leverage up to $1. ...
· UST currently has a AAA debt rating, and even though they will be downgraded if they take on the $1 billion debt, UST wants to maintain investment-grade ratings.
Approximate Word count = 532
Approximate Pages = 2.1
(250 words per page double spaced)
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