When calculating the after-tax weighted average cost of capital (WACC),which of the following costs is adjusted for taxes in the equation?
A)The before-tax cost of equity
B)The before-tax cost of debt
C)The before-tax cost of preferred stock
D)The after-tax cost of debt

Question

Quizplus · Accepted Answer

The before-tax cost of debt is adjusted for taxes in the WACC equation because interest expenses on debt are tax-deductible, which effectively reduces the cost of debt for the company. This adjustment is not applicable to the cost of equity or preferred stock, as dividends paid on these securities are not tax-deductible.

When Calculating the After-Tax Weighted Average Cost of Capital (WACC),which