Ridge Tool has on its books the amounts and specific (after-tax) costs shown in the following table for each source of capital:

Source of capital	Book value		Individual cost
Long-term debt	$700,000		6.5%
Preferred stock	$90,000		10.2%
Common stock equity	$400,000		15.8%

a.The firm's weighted average cost of capital, r Subscript ara, using book value weights is _______%. (Round to two decimal places.)

b.Explain how the firm can use this cost in the investment decision-making process.(Select the best answer below.)

A. The WACC is the rate of return that the firm must exceed on long-term projects to maintain the value of the firm. The cost of capital can be compared to the dollar value for a project to determine whether the project is acceptable.

B. The WACC is the rate of return that the firm must not exceed on long-term projects to maintain the value of the firm. The cost of capital can be compared to the return for a project to determine whether the project is acceptable.

C. The WACC is the rate of return that the firm must receive on short-term projects to maintain the value of the firm. The cost of capital can be compared to the dollar value for a project to determine whether the project is acceptable.

D. The WACC is the rate of return that the firm must receive on long-term projects to maintain the value of the firm. The cost of capital can be compared to the return for a project to determine whether the project is acceptable.