When calculating the weighted average cost of capital (WACC), the component that needs to be adjusted for taxes is c) debt.
The reason for this is that interest payments on debt are tax-deductible. This means that when a company pays interest on its debt, it reduces its taxable income, thus reducing the overall tax burden. Therefore, when calculating the cost of debt for WACC, you should multiply the cost of debt by (1 – tax rate) to reflect this tax shield.
On the other hand, costs associated with common stock, retained earnings, and preferred stock are not adjusted for taxes, as they do not benefit from tax deductibility in the same way that debt does.