Question

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

Answer 1

Answer:

The before-tax cost of debt is adjusted for tax in the computation of weighted average cost of capital.

The correct answer is  D

Explanation:

In the calculation of weighted average cost of capital, the before tax cost of debt is adjusted for tax so as to obtain the after-tax cost of debt. Cost of equity and cost of preferred stocks will not be adjusted for tax.