FoF Chapter 9 Question 10

WACC_Market value weights The market values and after-tax costs of various sources of capital used by Ridge Tool are shown in the following table: a. Calculate the firm's weighted average cost of capital. b. Explain how the firm can use this cost in the investment decision-making process. \begin{tabular}{lcc} \hline Source of capital & Market value & Individual cost \\ \hline Long-term debt & $700,000 & 7.7% \\ Preferred stock & $30,000 & 12.7% \\ Common stock equity & $400,000 & 15.1% \\ \hline \end{tabular}