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

Name: Consider the following equation: r wacc = r E + r D (1 - τ c ) The term r D (1 - τ c )in this equation is:
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Question

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

Quizplus · Accepted Answer

The term r_D(1 - τ_c) represents the after-tax cost of debt. The formula subtracts the tax shield from the interest tax deduction from the pretax cost of debt in order to determine the net cost. Therefore, the correct choice is (C) the after-tax required rate of return on debt.

Consider the Following Equation: Rwacc = RE

Consider the Following Equation: R_wacc = R_E