35. Which of the following statements is CORRECT? a. When calculating the cost of debt, a company needs to adjust for taxes, becau se interest payments are deductible by the paying corporation. Ilating the cost of preferred stock, companies must adjust for taxes, because C. Because of tax effects, an increase in the risk-free rate will have a greater effect on the after- d. If a company's beta increases, this will increase the cost of equity used to calculate the dividends paid on preferred stock are deductible by the paying corporation. tax cost of debt than on the cost of common stock as measured by the CAPM WACC, but only if the company does not have enough retained earnings to take care of its equity financing and hence must issue new stock e. Hligher flotation costs reduce investors' expected returms, and that leads to a reduction in a company's WACC