Question
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)
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 % 20 % Preferred stock 14.0 10 Common equity 18.0 70 Plan B Debt 7.2 % 30 % Preferred stock 14.2 10 Common equity 19.0 60 Plan C Debt 8.0 % 40 % Preferred stock 13.7 10 Common equity 15.9 50 Plan D Debt 12.0 % 50 % Preferred stock 14.6 10 Common equity 16.8 40 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?
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