x Cement Ltd requires you, as their financial consultant, to advise them with respect to the dividend policy they have to follow for the current year. The cement industry has been through a very trying period in the last five years and the constraints on operations have been removed in the early part of the year. The company hopes to improve its position in the years to come and has plans to put up an additional plant in the neighbourhood of the present factory. The increased profits, due to expansion in capacity, are expected to be 25 per cent of the additional capital investment after meeting interest charges but before depreciation on the additional plant installed. The shares of X Cement Ltd are widely held and there is a large majority of holdings in the hands of middle class invesotrs whose average holdings do not exceed 500 shares. The following further data is also made available to you: Particulars Eamings per share (Rs) Cash availability per share (Rs) Dividend/share (Rs) Pay out ratio Average market price (face value of Rs 100) PE ratio 1 6.00 7.50 3.00 50 80 13.33:1 2. 5.0 6.0 3.0 60 70 14:1 What recommendations would you make? Give reasons for your answers