A company has K$120,000$ ordinary shares in issue. It is expected that total profit after tax next year will be k$600,000.$ The current company policy is zero dividends. Some directors have complained that this zero dividend policy affect the current share price of K$50.$ The company has proposed to give $75\%$ of its retained earnings next year as dividends. The company has a rate of returns of $10\%.$

Required

A$)$ With supporting calculations, explain the effect that the proposal will have on the share price.

b$)$ describe the dividend theory that your calculations in a above supported and describe alternative theories related to dividends.