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 pictured below.

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 & 6.5% \\ Preferred stock & $40,000 & 9.5% \\ Common stock equity & $550,000 & 17.8% \\ \hline \end{tabular}