I x ( 1 - t)
I+p
I-P
Ixp
Answer is Right!
Answer is Wrong!
The correct answer is A. I x (1 – t).
The cost of debt is the rate of return that a company pays on its debt. It is calculated by multiplying the interest rate on the debt by (1 – the tax rate). This is because the interest on debt is tax-deductible, so the effective cost of debt is lower than the interest rate.
Option B is incorrect because it does not take into account the tax rate. Option C is incorrect because it subtracts the principal from the interest rate, which does not make sense. Option D is incorrect because it multiplies the interest rate by the principal, which is not the formula for the cost of debt.