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WACC Book weights Ridge Tool has on its books the amounts and specific (after-tax) costs shown in the following table for each source of capital: EEB a. Calculate the firm's weighted average cost of capital using book value weights b. Explain how the firm can use this cost in the investment decision-making process Source of capital Long-term debt Preferred stock Common stock equity Book value $900,000 $30,000 $600,000 individual cost 55% 11 .8% 15.2% b. Explain how the firm can use this cost in the investment decision-making process. (Select the best answer below.) O A. The WACC is the rate of return that the firm must receive on long-term projects to maintain the value of the firm. The cost of capital can be compared to the return for O B. The WACC is the rate of return that the firm must not exceed on long-term projects to maintain the value of the firm. The cost of capital can be compared to the C The WACC is the rate of return that the firm must exceed on long-term projects to maintain he value of he imm The o of a 1 an be compare to hed ar D. The WACC s the rate of return that the firm must rece ve on short-term pro ects to maintain a ve of the inm The cost of capital can be compared O dollar a project to determine whether the project is acceptable return for a project to determine whether the project is acceptable. value for a project to determine whether the project is acceptable. value for a project to determine whether the project is acceptable

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