Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 177 views

    This Study Resource Was: (Question)

    Uploaded by

    Mir Salman Ajab
    Sauer Milk Inc. is considering four financial plans to determine its minimum cost of capital. Plan B has the lowest weighted average cost of capital of 8.93%. Plan C has a higher cost of capital than Plan D because the costs of all components, including debt, preferred stock, and common equity, increased sharply once debt exceeded 50% of the capital structure.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    This Study Resource Was: (Question)

    Uploaded by

    Mir Salman Ajab
    177 views2 pages
    Sauer Milk Inc. is considering four financial plans to determine its minimum cost of capital. Plan B has the lowest weighted average cost of capital of 8.93%. Plan C has a higher cost of capital than Plan D because the costs of all components, including debt, preferred stock, and common equity, increased sharply once debt exceeded 50% of the capital structure.

    Original Title

    Doc

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Sauer Milk Inc. is considering four financial plans to determine its minimum cost of capital. Plan B has the lowest weighted average cost of capital of 8.93%. Plan C has a higher cost of capital than Plan D because the costs of all components, including debt, preferred stock, and common equity, increased sharply once debt exceeded 50% of the capital structure.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    177 views2 pages

    This Study Resource Was: (Question)

    Uploaded by

    Mir Salman Ajab
    Sauer Milk Inc. is considering four financial plans to determine its minimum cost of capital. Plan B has the lowest weighted average cost of capital of 8.93%. Plan C has a higher cost of capital than Plan D because the costs of all components, including debt, preferred stock, and common equity, increased sharply once debt exceeded 50% of the capital structure.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    [Question]

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

    m
    er as
    co
    eH w
    o.
    rs e
    ou urc
    .:.
    o

    a. Which of the four plans has the lowest weighted average cost of capital? (Round to two
    aC s
    vi y re

    places to the right of the decimal point.)


    b. Briefly discuss the results from Plan C and Plan D, and why one is better than
    the other.
    ed d
    ar stu

    [Answer]
    is

    Sauer Milk Inc.


    Th

    a. Cost Weighted
    (aftertax) Weights Cost
    sh

    Plan A
    Debt 4.0% 30% 1.20%
    Preferred stock 8.0 15 1.20
    Common equity 12.0 55 6.60
    9.00%

    This study source was downloaded by 100000810572340 from CourseHero.com on 10-09-2021 11:32:50 GMT -05:00

    https://www.coursehero.com/file/14514685/28/
    Plan B
    Debt 4.5% 40% 1.80%
    Preferred stock 8.5 15 1.28
    Common equity 13.0 45 5.85
    8.93%

    Plan C
    Debt 5.0% 45% 2.25
    Preferred stock 18.7 15 2.81
    Common equity 12.8 40 5.12
    10.18%

    Plan D
    Debt 12.0% 50% 6.00%
    Preferred stock 19.2 15 2.88
    Common equity 14.5 35 5.08

    m
    13.96%

    er as
    Plan B has the lowest weighted average cost of capital.

    co
    eH w
    o.
    b. Plan D is higher than Plan C because all components in the capital structure
    rs e
    increased sharply after the firm hit the 50 percent debt level.
    ou urc
    o
    aC s
    vi y re
    ed d
    ar stu
    is
    Th
    sh

    This study source was downloaded by 100000810572340 from CourseHero.com on 10-09-2021 11:32:50 GMT -05:00

    https://www.coursehero.com/file/14514685/28/
    Powered by TCPDF (www.tcpdf.org)

    You might also like