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The firm currently has one issue of bonds outstanding. The bonds have a par value of...

The firm currently has one issue of bonds outstanding. The bonds have a par value of $1,000 per​ bond, carry a coupon rate of 8 percent, have 14 years to​ maturity, and are selling for ​$1,070.​Nealon's common stock has a current market price of $ 36 and the firm paid a $2.60 dividend last year that is expected to increase at an annual rate of 6 percent for the foreseeable future.

A) What is the weighted average cost of capital for​ Nealon's investment using the weights reflected in the actual financing mix​ (that is,​$20 million in retained earnings and ​$60 million in​bonds)?

B) Compute the weighted average cost of capital for Nealon where the firm maintains its target capital structure by reducing its debt offering to 30 percent of the ​$80 million in new​ capital, or ​$24 ​million, using ​$20 million in retained earnings and raising $36 million through a new equity offering.

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