Sauer Milk Inc. wants to determine the minimum cost of capital point for the firm....
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Finance
Sauer Milk Inc. wants to determine the minimum cost of capital point for the firm. Assume it is considering the following financial plans:
| Cost (aftertax) | Weights | |||||
| Plan A | ||||||
| Debt | 6.0 | % | 25 | % | ||
| Preferred stock | 12.0 | 15 | ||||
| Common equity | 20.0 | 60 | ||||
| Plan B | ||||||
| Debt | 6.2 | % | 35 | % | ||
| Preferred stock | 12.2 | 15 | ||||
| Common equity | 17.0 | 50 | ||||
| Plan C | ||||||
| Debt | 7.0 | % | 45 | % | ||
| Preferred stock | 16.7 | 15 | ||||
| Common equity | 12.6 | 40 | ||||
| Plan D | ||||||
| Debt | 14.0 | % | 55 | % | ||
| Preferred stock | 17.6 | 15 | ||||
| Common equity | 14.6 | 30 | ||||
a-1. Compute the weighted average cost for four plans. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)
a-2. Which of the four plans has the lowest weighted average cost of capital?
multiple choice
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Plan A
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Plan B
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Plan C
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Plan D
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