Cost Of Debt

If the effective tax rate on all of your debts is 53 and your tax rate is 30 then the after-tax cost of debt will be.

Cost of debt. Cost of debt is the required rate of return on debt capital of a company. A companys cost of debt is the effective interest rate a company pays on its debt obligations including bonds mortgages and any other forms of debt the company may have. Before-tax cost of debt x 100 - incremental tax rate After-tax cost of debt.

It has two types. Since debt is a deductible expense the cost of debt is most often calculated as an after-tax cost to make it more comparable to the cost of equity. A cost of debt is described as the minimum rate of return a hold of debt needs to accept for a liability.

53 x 1 - 030 53 x 070 371. Interest and other charges a company has to pay on the amount it has borrowed in the form of bonds. The debt monkey doesnt just steal money via loan interest.

Because interest expense is deductible its generally more useful to determine a companys after-tax cost of debt. It is mainly associated with debenture. A companys cost of debt is the effective interest rate a company pays on its debt obligations including bonds mortgages and any other forms of debt the company may have.

Before we delve into the cost of debt lets think about what debt is. The result is the cost of debt. The effective tax rate is the weighted average interest rate of a companys.

The true cost of a loan is intrinsically tied to its term. The after-tax cost of debt is the initial cost of debt adjusted for the effects of the incremental income tax rate. Divestopedia explains Cost of Debt.