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QUESTION 2 Secure First Ltd is a manufacturer of security equipment products. Currently Secure First Ltd has three sources of capital which is bond sells for $1,250 consist of 500 bonds, preferred stock sells at $65 consist of 2,000 preferred shares and common stock sells for $27 consists of 20,000 common shares. Currently the coupon payment for the bond is 10%, floatation cost is 1%, tax rate is 30% and maturity period is 15 years. The preferred stock pays a dividend of $7 and the floatation cost is 2%. The common stock's last dividend was $2.5, the dividend is expected to grow at 6% and the floatation cost is 5%. Required: a) Construct a model to calculate the cost for each capital component and Weighted Average Cost of Capital (WACC) for Secure First Ltd. (20 marks) b) Explain the term cost of capital. Describe why cost of capital have an extremely important role in capital budgeting decisions. (5 marks) (Total: 25 marks)