Determine the minimum cost of capital point for the firm

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Reference no: EM131987755

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. (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 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.

Reference no: EM131987755

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