Ridge tool has on its books the amounts and specific after

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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: EM13355661

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