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The market values and after-tax costs of various sources of capital used by Ridge Tool...

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Accounting

The market values and after-tax costs of various sources of capital used by Ridge Tool are shown in the following table: LOADING....

Source of capital

Market value

Individual cost

Long-term debt

$850,000

6.8%

Preferred stock

$60,000

9.7%

Common stock equity

$500,000

14.9%

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.

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