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Four plans has lowest weighted average cost of capital

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Reference no: EM131354364

Saucer Mild Inc. wants to determine the minimum cost of capital point for the firm. Assume it is considering the following financial plans:

Plan A                               Cost AfterTax                                Weights

Debt............................        4%                                                30%

Preferred Stock..........          8                                                   15

Common Equity.........           12                                                  55

Plan B

Debt..............................        4.5%                                             40%

Preferred Stock...........          8.5                                                 15

Common Equity..........            13                                                 45

Plan C

Debt............................             5%                                               45

Preferred Stock.........               18.7                                             15

Common Equity.......                 12.8                                              40

Plan D

Debt........................                   12%                                              50%

Prreferred Stock....                     19.2                                              15

Common Equity                           14.5                                             35

A) Which of the four plans has the lowest weighted average cost of capital?

B) Briefly discuss the results from Plan C and Plan D, and why one is better than the other.

Reference no: EM131354364

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