Clob Corporation has $51 llon in cash, 11 m in shares obtand g and a current sha

Question

Clob Corporation has $51 llon in cash, 11 m in shares obtand g and a current shareprice osuoniidecid g hefur tou·heS51 mal topuy ani od te yedeleandoft46, parchet ele nth Invest atthe risk free rate of 10% and use the SS 10-ininterest earned to increase its requiar annual dvidend of so as per share Assume peretonatus a. Suppose Clovlx pays the special dividend How can a shareholder who would preler an increase in the regular diidend creale on her own b. Suppose Clova increases its regular dividend How can a shareholder whe would prefer the special dividend create on hee ow? a. Suppose Clovix pays the special dividond How can a shareholider who would prefor an increase in the regular dividend creale it on her on? Clovis pays the special dividend, a shareholder who would peefer an lncrease in the regular dividend can create i& on her own by (Select hom drop down menus) $464sped"dvidend and use te hAr' payments to earn an extra $0.46p

Explanation / Answer

a. special dividend received = 4.64

the shareholder can the invest this at risk free rate of 10%, and receive an interest of = 4.64*(10%) = 0.464

So, the shareholder can receive the increase in the regular dividend by simply investing the special dividend at the risk free rate, and keep on getting the interest of 0.464 every year, which is same as the proposed increase in regular dividend

b) If Clovix increases regular dividend, a shareholder can simply invest that annually, and the present value of such annuity of annual investments would be 0.464/10% = 4.64, which is same as the proposed special dividend

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