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	%		30	%
Preferred stock		12.0			15
Common equity		16.0			55
Plan B
Debt		6.8	%		40	%
Preferred stock		12.8			15
Common equity		17.0			45
Plan C
Debt		7.0	%		50	%
Preferred stock		13.7			15
Common equity		7.8			35
Plan D
Debt		11.0	%		60	%
Preferred stock		14.4			15
Common equity		9.5			25

a-1. Compute the weighted average cost for four plans.

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.