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.
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%
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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