Can I please get parts (d) (e) and (f) explained to me from Keown Text Chapter 9, Mini Case, in more detail of how to find the answers and why? I'm confused with how the numbers and percentages were found and I would like to better understand why cost of calculation to use and why?

d. Compute the weighted average cost of capital for Nealons investment using the weights reflected in the actual financing mix (that is, $20 million in retained earnings and

$50 million in bonds).

Cost of retained earnings = $2.5(1+.06) +.06

[$35]

= $2.65 +.06

$35

= .1357

=13.57%

Source	Proportion	Cost of capital	WACC (new)
Retained earnings	28.57% ($20m)	13.57%	3.88%
Bonds	71.43% ($50m)	5.24%	3.74%
Total	100% ($70m)		7.62%

Compute the weighted average cost of capital for Nealon where the firm maintains its target capital structure by reducing its debt offering to 40 percent of the $70 million in new capital, or $28 million, using $20 million in retained earnings and raising $22 million through a new equity offering.

Source	Amount	Proportion	Cost of Capital	WACC
Bonds	$28 mil	40%	5.24%	2.1%
Retained earnings	$20 mil	27.57%	13.57%	3.88%
Equity	$22 mil	31.43%	14.03%	4.41%
Total	$70 mil	100%		10.38%

f. If you were the CFO for the company, would you prefer to use the calculation of the cost of capital in part (d) or (e) to evaluate the new project? Why?

If I were the CFO for Nealon Energy Corporation