Casper's Inc. just paid $1.5 dividend per share, and expects that the annual growth rate

of dividend per share in the future will be 10%. The firm has 60,000 shares of common stock

outstanding at a market price of $49 per share, and the stock's beta is 1.26. The firm has 9,800 shares

of 12.24% preferred stock with a market value of $100 a share. The firm has $1,100,000 outstanding

bonds with the yield-to-maturity rate at 8.75%. The corporate tax rate is 33%. The risk-free rate is

3.2% and the market risk premium is 9.1%. Please answer the following questions:

a) What should be the cost of equity for the firm if using the Dividend Growth Model? What should

be the cost of equity for the firm if using the CAPM (i.e., SML)? Then, based on the average of these

two estimates, what is the cost of equity for the firm?

b) Please calculate the weighted average cost of capital (WACC) for the firm. Assume the cost of

equity is equal to the average of two estimates calculated in part (a).