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    ClaraCorporation has paid quarterly cash dividends since 1975. The dividendshave steadily increased from $.20 per share to the latest dividend declarationof $2.50 per share. The board of directors is eager to continue thistrend despite the fact that revenues fell significantly during recent months asa result of worsening economic conditions and increased competition. Thecompany’s founder and member of the board proposes a solution. Hesuggests a 5% stock dividend in lieu of a cash dividend to be accompanied bythe following press announcement: "Inlieu of our regular $2.50 per share cash dividend, Clara Corporation willdistribute a 5% stock dividend on its common shares, currently trading at $40per share. Changing the form of the dividend will permit the Company todirect available cash resources to the modernization of physical facilities inpreparation for competing in the 21st century." Whatdo you think?
 
 
 
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