7. Berkeley Farms 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 ..................................  4.0% 30% Preferred stock ..................  8.0 15 Common equity .................  12.0 55 Plan B   Debt ..................................  4.5% 40% Preferred stock ..................  8.5 15 Common equity .................  13.0 45 Plan C   Debt ..................................  5.0% 45% Preferred stock ..................  18.7 15 Common equity .................  12.8 40 Plan D   Debt ..................................  12.0% 50% Preferred stock ..................  19.2 15 Common equity .................  14.5 35 a. Which of the four plans has the lowest weighted average cost of capital?  Use the Kd (cost of debt) = Y(1 - T), Kp (Cost of preferred stock) = Dp/Pp - F, Ke = D1/P0 + g formulas or I will not understand.

Entrepreneurial Finance
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Chapter14: Security Structures And Determining Enterprise Values
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7. Berkeley Farms 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 ..................................  4.0% 30% 
Preferred stock ..................  8.0 15 
Common equity .................  12.0 55 
Plan B   
Debt ..................................  4.5% 40% 
Preferred stock ..................  8.5 15 
Common equity .................  13.0 45 
Plan C   
Debt ..................................  5.0% 45% 
Preferred stock ..................  18.7 15 
Common equity .................  12.8 40 
Plan D   
Debt ..................................  12.0% 50% 
Preferred stock ..................  19.2 15 
Common equity .................  14.5 35 
a. Which of the four plans has the lowest weighted average cost of capital? 

Use the Kd (cost of debt) = Y(1 - T), Kp (Cost of preferred stock) = Dp/Pp - F, Ke = D1/P0 + g formulas or I will not understand. 

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