Sauer Milk Inc. wants to determine the minimum cost of capital point for the firm. Assume...
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 | % | 25 | % | ||
| Preferred stock | 12.0 | 15 | ||||
| Common equity | 16.0 | 60 | ||||
| Plan B | ||||||
| Debt | 6.6 | % | 35 | % | ||
| Preferred stock | 12.6 | 15 | ||||
| Common equity | 17.0 | 50 | ||||
| Plan C | ||||||
| Debt | 7.0 | % | 45 | % | ||
| Preferred stock | 19.7 | 15 | ||||
| Common equity | 15.5 | 40 | ||||
| Plan D | ||||||
| Debt | 17.0 | % | 55 | % | ||
| Preferred stock | 20.4 | 15 | ||||
| Common equity | 17.6 | 30 | ||||
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 A
-
Plan B
-
Plan C
-
Plan D
Homework Answers
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Sauer Milk Inc. wants to determine the minimum cost of capital
point for the firm. Assume...
Sauer Milk Inc. wants to determine the minimum cost of capital point for the firm. Assume...
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 20 Common equity 16.0 50 Plan B Debt 6.5 % 40 % Preferred stock 12.5 20 Common equity 17.0 40 Plan C Debt 7.0 % 45 % Preferred stock 20.7 20 Common equity 14.8 35 Plan D Debt 14.0 % 50 % Preferred stock...
Sauer Milk Inc. wants to determine the minimum cost of capital point for the firm. Assume...
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