WACC-Book weights 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	$800 comma 000800,000		5.55.5%
Preferred stock	$50 comma 00050,000		12.912.9%
Common stock equity	$450 comma 000450,000		15.715.7%

1) The firm's weighted average cost of capital, ra, using book value weights is ____% (round to 2 decimal places)

2) Explain how the firm can use this cost in the investment decision-making process. (select best answer)

a) 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.

b) 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.

c) 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.

d) 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.