Determine the firm''s weighted average cost of capital

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Reference no: EM1310286

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	Specific cost
Long term debt	$700,000	5.30%
Preferred stock	$50,000	12
Common stock equity	650,000	16

a. Calculate the firm's weighted average cost of capital using book value weights.

b. Explain how the firm can use the cost in the investment decision-making process.

Reference no: EM1310286

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