Business, 10.08.2021 03:30, bhopainting
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 7.0% 15%
Preferred stock 14.0 10
Common equity 18.0 75
Plan B
Debt 7.5% 25%
Preferred stock 14.5 10
Common equity 19.0 65
Plan C
Debt 8.0% 35%
Preferred stock 21.7 10
Common equity 15.8 55
Plan D
Debt 15.0% 45%
Preferred stock 22.2 10
Common equity 17.5 45
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?
b. What is the relationship between the various types of financing costs and the debt-to-equity ratio?
All types of financing costs increase as the debt-to-equity ratio increases.
All types of financing costs decrease as the debt-to-equity ratio increases.
Answers: 3
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Sauer Milk Inc. wants to determine the minimum cost of capital point for the firm. Assume it is cons...
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