Clovix Corporation has $54.88 million in cash, 9.8 million shares outstanding, and a current share price of $30. Clovix is deciding whether to use the $54.88 million to pay an immediate special dividend of $5.60 per share, or to retain and invest it at the riskfree rate of 10% and use the $5.49 million in interest earned to increase its regular annual dividend of $0.56 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?