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The capital structure of Dream Mattresses Incorporated (DMI) consists of common shares, preferred shares, and bonds. DMI has 5 million common shares outstanding, and the

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The capital structure of Dream Mattresses Incorporated (DMI) consists of common shares, preferred shares, and bonds. DMI has 5 million common shares outstanding, and the current share price is \$58. DMI has 4.8 million preferred shares outstanding with par value of $20 each but the current market price is $18.5. DMI also has $200 million face value in outstanding debt. The market value of the debt is $995 per $1000 face value. a) What is the weight of each source of capital of DMI? (5 marks) b) DMI record of dividend payments is as follows: What is the cost of common equity capital for DMI? (5 marks) Hint: First, you need the average growth rate of dividends. c) Each preferred share of DMI pays $2 in annual dividends. What is the cost of preferred share capital? (2 marks) d) DMI's debt matures in 16 years. The coupon rate is 8% per annum but payments are made semi-annually. DMI's corporate tax rate is 25%. What is the after-tax cost of debt capital? (5 marks) e) What is the WACC? ( 2 marks)

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