WACC – Adjusted
The company gets a tax deduction for interest on debt, reducing the effective cost of debt.
If TC is the corporate tax rate then the after tax cost of debt is RD×(1 TC), and the WACC adjusted for taxation effects is given by:
WACC = wE × RE + wP × RP + wD × RD(1–Tc)
or
WACC = (E/V) × RE + (P/V) × RP + (D/V) × RD(1–Tc)
Previous example: If tax rate is 30%, then
WACC = (0.5)×0.14 + (0.1)×0.09 + (0.4)×0.057(1–0.3)
= 0.0950 or 9.5%.