31. Nelson Manufacturing has a series of $1,000 par value bonds. They pay intere

Question

31. Nelson Manufacturing has a series of $1,000 par value bonds. They pay interest semiannually. The coupon rate is 8% and the bonds have 12 years to maturity. If the investors required return on this bond is 14%, what is the most you would want to pay for a Nelson Company bond? 32. Shawn Supply plans to maintain its optimal capital structure of 30% debt, 20% preferred stock, and 50% common equity. The required return on each component is: debt 10%, preferred stock 11%, common equity 18%. Assuming a 40% tax rate, what is the company's weighted average cost of capital?

Explanation / Answer

Nelson Company bond value = 40/1.07 + 40/1.07^2 + 40/1.07^3 ......1040/1.07^24 =$655.92

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