A company has a capital structure consisting of bonds with a market value of approximately $1,083,000, preference shares with a market value of $268,000 and ordinary shares with a market value of $3,681,000. The bonds have a $100 par value and annual coupon interest payments at a rate of 10% per annum. The market value of each bond is $115 and the bonds have 10 years to maturity. The preference shares pay a dividend of $0.27 per share and the current market price of a preference share is $2 per share. The ordinary shares pay a current dividend of $0.12 per share and dividends are expected to grow at 5% per annum. The current market price of an ordinary share is $1 per share. Assume a company tax rate of 30%.

(a) Determine the after tax costs of capital for the bonds, preference shares and ordinary shares.

(b) Calculate the companys after tax weighted average cost of capital.

(c) Explain why the weighted average cost of capital could be used as the discount rate in capital budgeting projects where multiple financing sources are used.