Wisdom Institute of Education is a reputed public company and wishes to estimate its cost of capital. The companys current capital structure, in terms of market value, includes 30% debt, 20% preferred equity, and 50% ordinary shares. The companys debt has an average yield to maturity of 8.3%. Its preferred shares have a $70 par value, an 8% dividend, and are currently selling for $76 per share. Wisdom beta is 1.5, the risk-free rate is 4.5%, and the market rate is 11.4%. The company is in the 30% tax bracket.

a) Calculate the after-tax costs of debt and ordinary shares of the company.

b) Calculate Wisdoms weighted average cost of capital (WACC) on both a pre-tax and after-tax basis.

c) Which WACC should Wisdom use when making investment decisions? Justify your answer