Compute the weighted average cost for four plans

Reference no: EM132077951

Question: 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 5.0 % 10 % Preferred stock 10.0 5 Common equity 14.0 85 Plan B Debt 5.6 % 20 % Preferred stock 10.8 5 Common equity 15.0 75 Plan C Debt 6.0 % 30 % Preferred stock 16.7 5 Common equity 12.5 65 Plan D Debt 14.0 % 40 % Preferred stock 17.4 5 Common equity 14.8 55

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

a-2. Which of the four plans has the lowest weighted average cost of capital? Plan A Plan B Plan C Plan D

b. What is the relationship between the various types of financing costs and the debt-to-equity ratio? All types of financing costs increase as the debt-to-equity ratio increases. All types of financing costs decrease as the debt-to-equity ratio increases.

Hints: Referencese Book & Resources Worksheet Difficulty: Intermediate Learning Objective: 11-01 The cost of capital represents the weighted average cost of the source of financing to the firm.

Reference no: EM132077951

Questions Cloud

What effect would the recent shift in s and l policy have : Savings and loans associations (S&Ls) have recently moved away from using securities as scecondary reserves to borrowing from the federal funds market.

Should the old tractor be replaced by the new one : Lincoln tractor is 15 years old, fully depreciated, obsolete, and has no salvage value. Should the old tractor be replaced by the new one

What is the meaning of lead time to work content ratio : A services company offers a range of software services for its customers. What is the meaning of lead time to work content ratio?

What is the cost of goods sold for the company : Saunders Corp. has current liabilities of $410822, a quick ratio of 0.8, inventory turnover of 5.6, and a current ratio of 1.5.

Compute the weighted average cost for four plans : 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).

Compute the variable and fixed cost elements : Mace Company accumulates the following data concerning a mixed cost, Compute the variable and fixed cost elements using the high-low method

Compute the equivalent units of production for materials : Manufacturing Cost: Beginning work in process inventory of $40,000, Compute the equivalent units of production for materials and conversion costs

How much money must you deposit in an account : You are saving for the college education of your two children. They are two years apart in age; one will begin college 16 years from today.

Calculate the net present value : Tom Bat became a baseball enthusiast at a very early age. For this investment, calculate the following - the net present value

User Account

All Pages