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 88 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 66 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 inbonds)?

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.