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Homework answers / question archive / Why is the after-tax cost of debt rather than the before-tax cost used to calculate the Weighted Average Cost of Capital (WACC)?
Why is the after-tax cost of debt rather than the before-tax cost used to calculate the Weighted Average Cost of Capital (WACC)?
The coupon paid to the borrowers are tax deductible. Since company is saving tax by issuing debt, after tax cost of debt should be used instead of before-tax cost.
