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Sauer Milk Inc. wants to determine the minimum cost

Sauer Milk Inc. wants to determine the minimum cost
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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.)

 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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