$WACC = \frac{E}{V} * R_e + \frac{D}{V} *R_D(1-T_c) $

where $R_D$ should be the cost of the debt. $T_c$ is the tax rate. When googling the formula for cost of debt I find $Cost of debt = R_D = Interest*(1-tax rate)$

But this looks identical to the $R_D(1-T_c$) part, if only $R_d$ was interest rate in the WACC Formula. Does this mean we can rewrite WACC to

$WACC = \frac{E}{V}*R_e +\frac{D}{V}*r_i*(1-T_c)^2$ where $r_i$ is the interest rate, or is there something I'm not understanding correctly here?

  • 2
    $\begingroup$ No, there is no squared term. It is just a notation difference. $\endgroup$ – dm63 Feb 21 at 12:22
  • $\begingroup$ What you call "Costofdebt" is the "After Tax Cost of Debt". It is already included in the WACC formula as $R_D(1-T_c)$ $\endgroup$ – noob2 Feb 21 at 17:20
  • $\begingroup$ I see, thank you $\endgroup$ – novo Mar 1 at 12:11

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