Question
Clovix Corporation has $ 52.92 million in cash, 9.8 million shares outstanding, and a current share price of $ 35. Clovix is deciding whether to
Clovix Corporation has $ 52.92 million in cash, 9.8 million shares outstanding, and a current share price of $ 35. Clovix is deciding whether to use the $ 52.92 million to pay an immediate special dividend of $ 5.40 per share, or to retain and invest it at the risk-free rate of 10 % and use the $ 5.29 million in interest earned to increase its regular annual dividend of $ 0.54 per share. Assume perfect capital markets.
a. Suppose Clovix pays the special dividend. How can a shareholder who would prefer an increase in the regular dividend create it on her own?
b. Suppose Clovix increases its regular dividend. How can a shareholder who would prefer the special dividend create it on her own? a. Suppose Clovix pays the special dividend. How can a shareholder who would prefer an increase in the regular dividend create it on her own?(Select the best choice below.)
A. Borrow $ 5.40 today and use the increase in the regular dividend to pay the interest of $ 0.54 per year on the loan.
B. Borrow $ 35 today and use it to buy a share of Clovix stock.
C. Invest the $ 5.40 special dividend and earn interest of $ 0.54 per year.
D. Sell a share of Clovix stock for $ 35 today and invest the proceeds to earn $ 3.50 in interest.
b. Suppose Clovix increases its regular dividend. How can a shareholder who would prefer the special dividend create it on her own?(Select the best choice below.)
A. Invest the $ 5.40 special dividend and earn interest of $ 0.54 per year.
B. Borrow $ 35 today and use it to buy a share of Clovix stock.
C. Sell a share of Clovix stock for $ 35 today and invest the proceeds to earn $ 3.50 in interest.
D. Borrow $ 5.40 today and use the increase in the regular dividend to pay the interest of $ 0.54 per year on the loan.
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