(5 marks) Question Three a) The cost of capital concept is of vital significance in the financial decision making. Explain b) An ordinary share of a company, which engages no external financing is selling for shs.50. The earnings per share are shs. 7.50 of which sixty per cent is paid in dividends. The company reinvests retained eamings at a rate of 10%. Compute the cost of capital (ke). (5 marks) C Ltd is planning to raise funds by the issuance of equity capital. The current market price of the company's share is shs 150. The company is expected to pay a dividend of shs 3.55 next year. The company has paid dividends in past years as follows: Year Dividend per share (shs) 2009 2.00 2010 2.20 2011 2.42 2012 2.66 2013 2.93 2014 3.22 The company can sell shares for shs 140 each only. In addition, the flotation cost per share is shs 10. Calculate the cost of new issue. (10 marks)