Question

21)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 7.0% 15%  Preferred stock 14.0  10   Common equity 18.0  75   Plan B        Debt 7.5% 25%  Preferred stock 14.5  10   Common equity 19.0  65   Plan C        Debt 8.0% 35%  Preferred stock 21.7  10   Common equity 15.8  55   Plan D        Debt 15.0% 45%  Preferred stock 22.2  10   Common equity 17.5  45 
 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.)
  Weighted Cost  Plan A %    Plan B %    Plan C %    Plan D %  
 a-2.Which of the four plans has the lowest weighted average cost of capital?   Plan APlan BPlan CPlan 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.

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