Clovix Corporation has \($50\) million in cash, 10 million shares outstanding, and a current share price of \($30.\) Clovix is deciding whether to use the \($50\) million to pay an immediate special dividend of \($5\) per share or to retain and invest it at the risk-free rate of 10% and use the

\($5\) million in interest earned to increase its regular annual dividend of \($0.50\) 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 Does a special dividend create it on her own?