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11) A firm has K.10million ordinary shares issued at par value of K 1 with market share price of
K /2 . The firm has just paid a dividend of K2.6 per share and five years ago the firm had paid
dividend per share of K 1.1 per share. The firm has a 10% bond amounting to K 4 million issued
at par value of K 1 , 000 with five years to maturity currently trading market price of K 1 , 095 .
Calculate the cost of capital using the market values. 12) A firm has an equity beta of 1.105 and
the market expected rate of return is 25% . The firm has in issue a 10% irredeemable bond issued
at par value of K 1 , 000 with market price of K 1 , 112 . The interest rate of government bond is
8% . Calculate the cost of capital.

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