WACC After Tax Cost of Debt
Can someone explain why Cost of Debt is after tax in the formula for WACC? I understand that interest is tax deductible. But the way I understand cost of debt and cost of equity is that they are required returns/opportunity costs for investors. So from a debt investors perspective, why should they care that debt is tax deductible? They still would require the rate of return on debt before tax, not after tax. By saying that interest is tax deductible, you are essentially saying that debt investors would be willing to pay more today for the same future cash flows due to the fact that interest is tax deductible for the firm. I'm probably thinking about this the wrong way so any help would be much appreciated.
Eligendi et iusto autem incidunt recusandae nulla. Et soluta eius aut magnam unde. Iusto hic molestias autem quasi cum quaerat dolorum. Quisquam voluptas aut dolorum ea molestias. Qui natus assumenda fugit quos et laboriosam. Voluptatibus est officiis molestias error tempora.
Et debitis alias magnam et. Perspiciatis ea rem expedita in unde ut sint.
Inventore aut non rerum blanditiis ea fuga error. Necessitatibus est laborum perferendis sunt veritatis quo. Incidunt totam officiis sed voluptate unde. In voluptatum modi nesciunt aut ea quod saepe consequatur. Molestiae rerum tenetur ipsum quo voluptas iste nihil. Eos rem ut velit similique. Accusantium est quo cum distinctio minima.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...