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)WeightsPlan ADebt6.0%30%Preferred stock12.015Common equity16.055Plan BDebt6.8%40%Preferred stock12.815Common equity17.045Plan CDebt7.0%50%Preferred stock13.715Common equity7.835Plan DDebt11.0%60%Preferred stock14.415Common equity9.525

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?

Plan APlan BPlan CPlan 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.