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Q1) Ridge Tool has on its books amounts and specific (after tax) costs given in the 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. Compute firm's weighted average cost of capital by using book value weights. 

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

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