Various types of financing costs and debt-to-equity ratio

Assignment Help Financial Management

Reference no: EM131297983

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 6.0 % 25 % Preferred stock 12.0 15 Common equity 16.0 60 Plan B Debt 6.2 % 35 % Preferred stock 12.2 15 Common equity 17.0 50 Plan C Debt 7.0 % 45 % Preferred stock 11.7 15 Common equity 7.6 40 Plan D Debt 7.0 % 55 % Preferred stock 12.6 15 Common equity 9.8 30 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.) Weighted Cost Plan A % Plan B % Plan C % Plan D % 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. HintsReferenceseBook & Resources WorksheetDifficulty: IntermediateLearning Objective: 11-01 The cost of capital represents the weighted average cost of the source of financing to the firm. Check my work ©2016 McGraw-Hill Education. All rights reserved.

Reference no: EM131297983

Questions Cloud

Prepare a business plan for a startup acute care hospital : The project is to prepare a business plan for a 200 bed startup acute care hospital in McAllen Texas. Part A - overview and strategy, part B - market analysis and part C - operations.

How much was the companys long-term debt at year end : How much was the company's long-term debt at year end? Compute the company's debt to equity ratio at year end. How does it compare to the industry? What does this tell you about the company?

What will be the long-run effects on the market for ethanol : Explain the effect of a fall in the oil price on the market for ethanol. If the price of oil remains low for some years, what will be the long-run effects on the market for ethanol and the number of ethanol producers?

What is the human resource plan in the case : What is the human resource plan in this case? Discuss its major tasks.- What is job analysis in general? How should it be used in this case.

Various types of financing costs and debt-to-equity ratio : 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 6.0 % 25 %. Which of the four plans has the lowest weighted average cost of..

What are elixir''s profit-maximizing price and output : Elixir Spring produces a unique and highly prized mineral water. The firm's total fixed cost is $5,000 a day, and its marginal cost is zero. Table 1 shows the demand schedule for Elixir water.

What must the coupon rate be on bonds : Kiss the Sky Enterprises has bonds on the market making annual payments, with 18 years to maturity, and selling for $950. At this price, the bonds yield 9.5 percent. What must the coupon rate be on the bonds?

Determine whether ability or motivation : Determine whether ability or motivation is more important in selecting the right person for the right job. Explain your rationale.

What kind of corporate culture does valassis have : What kind of corporate culture does Valassis have?- Why does Valassis spend so much time and money on interviewing job applicants?

User Account

All Pages