Sauer Milk Inc. wants to determine the minimum cost of capital point for the firm. Assume it
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Question:
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?
Related Book For
Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
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