Which of the following statements is correct? a. When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation. b. If a company's beta increases, this will increase the cost of equity used to calculate the WACC, but only if the company does not have enough retained earnings to take care of its equity financing and hence needs to issue new stock. c. When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation. d. Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of debt than on the cost of common stock.

a. When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation.

explanation: 

The cost of debt is the effective interest rate a company pays on its debts. It's the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking taxes into account. However, the difference in the cost of debt before and after taxes lies in the fact that interest expenses are deductible. The cost of debt is the rate a company pays on its debt, such as bonds and loans. The key difference between the cost of debt and the after-tax cost of debt is the fact that interest expense is tax-deductible. Cost of debt is one part of a company's capital structure, with the other being the cost of equity. Calculating the cost of debt involves finding the average interest paid on all of a company's debts.