Consider the following equation: rwacc = rE + rD(1 - τc)
The term rD(1 - τc)in this equation is:
A)the required rate of return on debt.
B)the dollar amount of equity.
C)the after-tax required rate of return on debt.
D)the required rate of return on equity.

Question

Consider the following equation: rwacc =  rE +  rD(1 - τc)
The term rD(1 - τc)in this equation is:
A)the required rate of return on debt. 
B)the dollar amount of equity. 
C)the after-tax required rate of return on debt. 
D)the required rate of return on equity.

Quizplus · Accepted Answer

The term rD(1 - τc) represents the after-tax required rate of return on debt, as it takes into account the tax shield from interest expense.

Consider the Following Equation: Rwacc = RE