Question
Clovix Corporation has $52.92 million in cash, 9.8 million shares outstanding, and a current share price of $ 32.Clovix is deciding whether to use the
Clovix Corporation has $52.92 million in cash, 9.8 million shares outstanding, and a current share price of $ 32.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?
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