The below must be calculated and presented in excel. Clovix Corporation has $50

Question

The below must be calculated and presented in excel.

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?

Explanation / Answer

A.If the company gives a special duvedend of 5$ to the sharehokder, the shareholder can invest this 5$ into riskfree rate of 10% and earn a return of 0.5$.Thus ypthe shareholder has created a regular divedend of 0.5$ from special duvedend.

B.If the company increases divedend by 0.5$, thevshareholder will have to buy 10 shares per 1 share to receive an increase if 5$ equivalent to special divedend.

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