Question

Clovix Corporation has $ 51 million in? cash, 9 million shares? outstanding, and a current share price of $ 30 . Clovix is deciding whether to use the $ 51 million to pay an immediate special dividend of $ 5.67 per? share, or to retain and invest it at the? risk-free rate of 10 % and use the $ 5.10 million in interest earned to increase its regular annual dividend of $ 0.57 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? If Clovix pays the special? dividend, a shareholder who would prefer an increase in the regular dividend can create it on her own? by:???(Select from? drop-down menus.) ? Selling Investing the $ 5.67 special dividend and use the future ? interest dividend payments to earn an extra $ 0.57 per year.

b. Suppose Clovix increases its regular dividend. How can a shareholder who would prefer the special dividend create it on her? own? If Clovix increases its regular? dividend, a shareholder who would prefer the special dividend can create it on her own? by:???(Select from? drop-down menus.) ? Lending Borrowing an amount equal to the $ 5.67 special dividend and use the increase in the regular dividend to fund her obligation to make ? interest dividend payments .

Answer 1

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?

If Clovix pays the special? dividend, a shareholder who would prefer an increase in the regular dividend can create it on her own? by:??

step 1 : receive the special dividend of $ 5.67

step2 : as risk free rate is 10% given , invest this money @ 10%

step 3 : receive interest of $ 0.57 per year.

b. Suppose Clovix increases its regular dividend. How can a shareholder who would prefer the special dividend create it on her? own? If Clovix increases its regular? dividend, a shareholder who would prefer the special dividend can create it on her own? by:?

Borrowing an amount equal to the $ 5.67 special dividend and use the increase in the regular dividend to fund her obligation to make interest payments .

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