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Sauer Milk Inc. wants to determine the minimum cost of capital point for the firm. Assume...

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Finance

Sauer Milk Inc. wants to determine the minimum cost of capitalpoint for the firm. Assume it is considering the followingfinancial plans:

Cost
(aftertax)		Weights
Plan A
Debt5.0%20%
Preferred stock10.010
Common equity14.070
Plan B
Debt5.2%30%
Preferred stock10.210
Common equity15.060
Plan C
Debt6.0%40%
Preferred stock15.710
Common equity11.650
Plan D
Debt12.0%50%
Preferred stock16.610
Common equity13.640


a-1. Compute the weighted average cost for fourplans. (Do not round intermediate calculations. Input youranswers as a percent rounded to 2 decimal places.)
  




a-2. Which of the four plans has the lowestweighted average cost of capital?
  

  • Plan A

  • Plan B

  • Plan C

  • Plan D

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Transcribed Image Text

Sauer Milk Inc. wants to determine the minimum cost of capitalpoint for the firm. Assume it is considering the followingfinancial plans:Cost(aftertax)WeightsPlan ADebt5.0%20%Preferred stock10.010Common equity14.070Plan BDebt5.2%30%Preferred stock10.210Common equity15.060Plan CDebt6.0%40%Preferred stock15.710Common equity11.650Plan DDebt12.0%50%Preferred stock16.610Common equity13.640a-1. Compute the weighted average cost for fourplans. (Do not round intermediate calculations. Input youranswers as a percent rounded to 2 decimal places.)  a-2. Which of the four plans has the lowestweighted average cost of capital?  Plan APlan BPlan CPlan D

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