Veighted average ost of capital LO11-1) 21. 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 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 owi of Plan D Debt 12.0% 50% Preferred stock 19.2 15 Common equity 14.5 35 Chapter 11 Cost of Capital Which of the four plans has the lowest weighted average cost of capital? (Round to two places to the right of the decimal point.) b. Briefly discuss the results from Plan C and Plan D, and why one is better a. than the other.
Veighted average ost of capital LO11-1) 21. 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 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 owi of Plan D Debt 12.0% 50% Preferred stock 19.2 15 Common equity 14.5 35 Chapter 11 Cost of Capital Which of the four plans has the lowest weighted average cost of capital? (Round to two places to the right of the decimal point.) b. Briefly discuss the results from Plan C and Plan D, and why one is better a. than the other.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Veighted average
ost of capital
LO11-1)
21. 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
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
owi of
Plan D
Debt
12.0%
50%
Preferred stock
19.2
15
Common equity
14.5
35
Transcribed Image Text:Chapter 11
Cost of Capital
Which of the four plans has the lowest weighted average cost of capital?
(Round to two places to the right of the decimal point.)
b. Briefly discuss the results from Plan C and Plan D, and why one is better
a.
than the other.
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