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.
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