Consider the following equation: r_wacc = r_E + r_D(1 - τ_c) The term r_D(1 - τ_c)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

Quizplus · Accepted Answer

The term rS1U1B1DS1U1B0(1 - τS1U1B1cS1U1B0) represents the after-tax required rate of return on debt, where rS1U1B1D is the before-tax required rate of return on debt, τS1U1B1c is the marginal tax rate for the company and S1U1B0 is the face value of the debt. This expression takes into account the tax benefits associated with interest payments on debt, making it the after-tax required rate of return on debt.

Consider the Following Equation: Rwacc = RE

Consider the Following Equation: R_wacc = R_E