Silver Tool has on its books the amounts and specific (after­tax) costs shown in the following table for each source of capital.

a. Calculate the firm's weighted average cost of capital using book value weights.
b. Explain how the firm can use this cost in the investment decision­making process.

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Source of capital Book value Specific cost Long-term debt Preferred stock Common stock equity US$700,000 50,000 650,000 5.3% 12.0 16.0