When computing the weighted average cost of capital, which of these are adjusted for taxes?

When computing the Weighted Average Cost of Capital (WACC), the component that is adjusted for taxes is the cost of debt. This is because interest expenses on debt are tax-deductible, which effectively reduces the actual cost of borrowing for a company.

The formula for the after-tax cost of debt is:

$\text{After-tax cost of debt} = r_d \times (1 - T)$

Where:

• $r_d$ is the nominal cost of debt (interest rate).
• $T$ is the corporate tax rate.

In contrast, the cost of equity is generally not adjusted for taxes in the WACC calculation.

Therefore, when calculating the WACC, ensure to incorporate the tax adjustment strictly on the cost of debt component to reflect a company's true capital costs.