21)

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.)

	Weighted Cost
Plan A	%
Plan B	%
Plan C	%
Plan D	%

a-2.	Which of the four plans has the lowest weighted average cost of capital?
	Plan A Plan B Plan C Plan D

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.