Dragon International Fashion Ltd (Dragon) is a listed firm in Hong Kong and its management is considering a new five-year expansion project that will develop 10 smart-fashion stores in Hong Kong. The smart-fashion stores are equipped with Dragons retail AI technology such as endless aisles, mobile check-in, customization kiosks and smart mirrors.

The smart-fashion store investment is somewhat riskier than the traditional fashion store project that Dragon currently undertakes, so its management uses the subjective approach and applies an adjustment factor of +2 percent to the cost of capital for this smart store project.

There are debt securities, common stocks, preferred stocks in the Dragons capital structure. The detail information about its capital structure and the market risk premium as well as the risk-free rate is shown in the following table.

Debt:	10,000 coupon bonds outstanding with annual coupon rate of 10 percent, $1,000 par value, 20 years to maturity, selling for 100 percent of par; the bonds make annual coupon payments.
Common stock:	500,000 shares outstanding, selling for $50 per share; the beta is 1.5.
Preferred stock:	10,000 shares of 12 percent preferred stock outstanding, currently selling for $100 per share.
Market:	10 percent market risk premium and 5 percent risk-free rate.

In addition, the market risk premium and risk-free rate are 8% and 4.5%, respectively. The firm is subject to 20% corporate marginal tax rate.

2a) What is the market value of Dragons capital structure? (5%)

2b) What is the Dragons after-tax cost of debt? (5%)

2c) Based on the CAPM analysis, what is the Dragons cost of equity? (5%)

2d) What is the cost of Dragons preferred stock? (5%)

2e) What is the cost of capital (discount rate) for the Dragons smart-fashion store project? (5%)