The cost of debt:
A) is typically higher than the cost of preferred stock
B) must be adjusted to an after-tax cost
C) is higher than the cost of retained earnings
D) is the lowest component cost because corporations can deduct 70 percent of the interest expense

Question

Quizplus · Accepted Answer

The cost of debt must be adjusted to an after-tax cost because the interest paid on debt is tax deductible. Therefore, the after-tax cost of debt is lower than the stated interest rate.

The Cost of Debt