ezto.mheducation.com Spilly M Merritt\'s 25th Birthd pl Sauer Milk Inc. wants to

Question

ezto.mheducation.com Spilly M Merritt's 25th Birthd pl Sauer Milk Inc. wants to determine the minimum cost of capital point for the firm. Assume It is considering the following financial Plan A Preferred stock Common equity Plan B 10.010 14.00 Preferred stock Common equity Plan C 5.2% 10.2 15.0 30% 10 60 6.0% 40% 10 18.7 11.550 Preferred stock Common equity Plan D Debt Preferred stook Common equity 16.0% 19.4 13.6 50% 10 40 a-1. Compute the weighted average cost for four plans. (Do not round intermedilate caiculations. Input your answers as a percent rounded to 2 decimal pla 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? APR CU

Explanation / Answer

Part a-1 Costs Weights Weighted Cost Plan A Debt 5.00% 20% 1.00% Preffered Stock 10 10 1.00% Common Equity 14 70 9.80% 11.80% Plan B Debt 5.20% 30% 1.56% Preffered Stock 10.2 10 1.02% Common Equity 15 60 9.000% 11.58% Plan C Debt 6.00% 40% 2.4% Preffered Stock 18.7 10 1.87% Common Equity 11.5 50 5.75% 10.02% Plan D Debt 16.00% 50% 8.00% Preffered Stock 19.4 10 1.94% Common Equity 13.6 40 5.44% 15.38% Part a-2 Plan C has the lowest Wighted Average Cost of Capital. Part b All types of financing cost increases as the debt of ratio increases.

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