A company has 120,000 ordinary shares in issue. It is expected that total profit after tax

next year will be K600,000.The current company policy is zero dividends. Some directors have complained that this zero dividend policy will affect the current share price of K50.The company has proposed to give 75% of its retained earnings next year as dividends. The company has accounting rate of return of 10%. REQUIRED; (a)With supporting calculations, explain the effect that the proposal will have on the share price. (5 Marks) (b)Describe the dividend theory that your calculations in (a) above supports and describe alternative theories related to dividends. (15 Marks)