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dcanswerer
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BEST ANSWER  decided by votes   |  dcanswerer  |  May 18, 2009 09:46 PM
I think it makes sense to increase your debt load if you expect the return on your debt will earn more than the interest rate you are paying out.

Microsoft has a AAA rating on their debt, so they can pay out very low interest rates (less than 4 percent, which isn't that much more than inflation). If they buy back their shares (which it sounds like they will be doing), they would only need the shares to appreciate by 4 percent a year in order to turn a profit on their debt.

Microsoft believes that their stock is undervalued. If that is true, then they will very likely earn far more than a 4 percent return on their investment.

Similarly, if they spend the money to grow the company (though I think that's less likely), it would not be too difficult to earn more of a return than that.

The company has well over $10 billion in cash. But they made the judgment that the money they borrow will turn a profit, so there was no sense in burning their cash on hand.

My guess is that it will turn out to be a good investment.

Voted as best: davepamn, tracebooks
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