Question 2 (30 marks) X plc is medium sized listed company. The results for 5 years to 31 December 2019 are as follows: 2019 2018 2017 2016 2015 EPS 140 136 131 127 122 (cents) DPS 82 81 79 78 77 (cents) Dividends are paid on 31 December each year and the dividend shown as declared in a particular year would have been or will be paid on 31 December the following year. If the current dividend policy is maintained, the directors estimate that annual growth in earnings and dividends will no better than the average growth in earnings over the past four years. X plc does not consider to take on debt at the present time to finance growth. The company is considering a change in its dividend policy and total investment programme to allow 50% of its earnings to be retained for identified capital investment projects which are estimated to have an average post-tax return of 15%. The market risk premium is expected to be 4% over the risk-free rate of 6%. The company's is currently quoted at 1.5 and is not expected to change for the near future. i. Required: a) Calculate the share price which might be expected by the market If the company does not announce a change in dividend policy ii. If the company does announce a change in dividend policy using whatever model you think appropriate. (12 marks) b) i. Comment on the limitations of the models you have used. (Word limit: 100 words). ii. Discuss the reasons why the share price might react differently from the market's expectations. (Word limit: 100 words). (18 marks)