2. Bay-of-Islands Dairies Ltd has an interest rate on its debt of 6 per cent per annum. The systematic risk of its equity is 1.2 and the effective company tax rate is 12%. Forty per cent of its funding is provided by debt, while 60 per cent is provided by equity. The risk-free interest rate is 5 per cent per annum. In calculating its cost of capital, bay-of-Islands has obtained two expert opinions as to the market risk premium. One expert suggests that the market risk premium is 1 per cent per annum, while the other suggests that the market risk premium is 5 per cent per annum. What are Bay-of-Islands' cost of capital based on these experts' opinions of the market risk premium?