Covidam Company clinches a contract to supply cleaning services to a nursing home for the next 5 years. Under the contract, the Company will be paid $1 million a year. To take up this contract, it would have to invest in new cleaning equipment costing $600,000 which will be depreciated straight line to zero over 5 years. There is no salvage value at the end of 5 years. Labour cost will be $300,000 per year and overheads $250,000per year. The Company will need to invest in net working capital of $350,000. It plans to issue $1 million worth of bonds for 5 years at a coupon rate of 6% and will price the bonds at par. The Company has an existing bank loan of $9 million. The cost of debt from the bank loan is the same as the bonds. The common stock of the Company is selling for $10 per share and it has 2 million shares outstanding. Expected dividend next year is $1 per share and dividends are expected to grow at 2% per annum into the foreseeable future. The tax rate is 20%. (a) Compute the cost of equity of the Company. (5 marks)