A formula of after-tax component cost of debt is

The correct answer is: C. interest rate + tax savings.

The after-tax component cost of debt is the cost of debt after taking into account the tax savings associated with interest payments. The formula for the after-tax component cost of debt is:

After-tax component cost of debt = (1 – tax rate) * interest rate

For example, if the interest rate on a loan is 10% and the tax rate is 20%, the after-tax component cost of debt is:

After-tax component cost of debt = (1 – 0.2) * 0.1 = 0.08 = 8%

The other options are incorrect. Option A, interest rate – tax savings, is the before-tax component cost of debt. Option B, marginal tax – required return, is the cost of equity. Option D,

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