Hello~ Is there anyone can tell me why WACC use (1-T_c) to multiply D/V*r_D? Please use a example to help me to understand it, I really don't get how to explain this formula verbally. Thanks a lot^^

[NEAS: The weighted average cost of capital is an after-tax return.

~ Case #1: The firm is funded entirely by equity and investors require a 10% return. If the firm earns 10% pre-tax on its capital, its after-tax return is 6.5%, which is not sufficient to pay its stockholders.

~ Case #2: The firm is funded entirely by debt and creditors require a 10% return. If the firm earns 10% pre-tax on its capital, its after-tax return is 6.5%. But the creditors are paid with pre-tax funds, which are a 10% return, which is sufficient.]