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Sauer Milk Company is trying to determine its optimal capital structure
The following options are under consideration:
WEIGHTING COST
OPTION A:
Debt 20% 5%
Preferred 10% 10%
Common 70% 14%
OPTION B:
Debt 30% 5.5%
Preferred 10% 10.5%
Common 60% 15%
OPTION C:
Debt 40% 6%
Preferred 10% 10.7%
Common 50% 15.8%
OPTION D:
Debt 50% 8%
Preferred 10% 11.2%
Common 40% 17.5%
Which of the plans has the lowest average cost of capital?
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