7Sauer Milk Inc. wants to determine the minimum cost of capital point for the firm. Assume it is considering the following financial plans: Cost...

E:7Sauer 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% 35%  Preferred stock 10.0  15   Common equity 14.0  50   Plan B        Debt 5.5% 45%  Preferred stock 10.5  15   Common equity 15.0  40   Plan C        Debt 6.0% 50%  Preferred stock 19.7  15   Common equity 13.8  35   Plan D        Debt 13.0% 60%  Preferred stock 20.2  15   Common equity 15.5  25 

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 CPlan APlan BPlan 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.