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.

iData Table 1 (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Source of capital Long-term debt Preferred stock Common Market value Individual cost $700,000 $40,000 stock equity$550,000 5.3% 10.9% 15.2% Print Done