The table below shows earnings and dividends for XYZ Plc over the past five years. There are 10,000,000 shares issued and the majority of these shares are owned by private investors. There is no debt in the capital structure. It is clear from the table that the company has experienced difficult trading conditions over the past few years. In the current year, net earnings are likely to be K10 million, which will be just sufficient to pay a maintained dividend of K1 per share. Members of the board are considering a number of strategies for the company, some of which will have an impact on the company future dividend policy. The company's shareholders require a return of 15% on their investment. Four options are being considered as follows: (a) Pay out all earnings as dividends (b) Pay a reduced divided of 50% of earnings and retain the remaining 50% for future investment. (c) Pay a reduced dividend of 25% of earnings and retain the remaining 75% for future investment (d) Retain all earnings for an aggressive expansion programme and pay no dividend at all. The directors cannot agree on any of the four options discussed so far. Some of them prefer option (1) because they believe to do anything else would have an adverse impact on the share price. Others favour either option (2) or option (3) because the company has identified some good investment opportunities and they believe one of these options would be in the best long-term interests of shareholders. An adventurous minority favours option (4) and thinks this will allow the company to take over a small mpetitor. Required (a) Discuss the company's dividend policy between 2018 and 2022 and its possible consequences for earnings. (4 marks) (b) Advise the directors of the share price for XYZ plc which might be expected immediately following the announcement of their decision if they pursued each of the four options, using an appropriate valuation model. You should also show what percentage of total return is provided by dividend and capital gain in each case. You should ignore taxation for this part of the question. Make (and indicate) any realistic assumptions you think necessary to answer this question. (6 marks) (c) Discuss the reliability you can place on the figures you have just produced and on the usefulness of this information to the company's directors