Clovix Corporation has $50 million in cash, 10 million shares outstanding, and a current share price of

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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 special dividend create it on her own?
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Related Book For  answer-question

Fundamentals Of Corporate Finance

ISBN: 9780133507676

3rd Edition

Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford

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