WACCMarket value weightsThe market values and after-tax costs of various sources of capital used by Ridge Tool are shown in the following table

source of capital market value ind. cost

long term debt 750,000 5.7%

preferred stock 70,000 12.7%

common stock 450,000 17.8%

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.