Cost of Debt



Next video:
Loading the player...

Cost of debt is the interest a company pays on its borrowings. It is expressed as a percentage rate. In addition, cost of debt can be calculated as a before-tax rate or an after-tax rate. Because interest is deductible for income taxes, the cost of debt is usually expressed as an after-tax rate. 

The formula for the cost of debt is the sum of the risk-free rate plus the credit spread times one minus the tax rate (Rf + Credit Spread)*(1 - Tax Rate). 

Related Articles
  1. Credit & Loans

    Debt Forgiveness: How to Get Out of Paying Your Student Loans

    There are income-based plans and forgiveness for public-service employees. The latest wrinkle: loan forgiveness because the school defrauded you.
  2. Investing

    Why a Rise In the National Debt Is Good for You

    In the first quarter of the year, the household national debt for Americans was $129 billion. Yet contrary to popular belief, debt is not always a bad thing.
  3. Savings

    What's More Important: Getting Out Of Debt Or Investing?

    To repay debt or invest, that is the question. These two important financial goals battle head-to-head to determine which is really more important.
  4. Investing Basics

    Using Options To Pay Off Debt

    We tell you about four option strategies that could provide a way to pay off your debt.
  5. Credit & Loans

    Why Credit Card Debt Levels Are Rising

    From increased spending to interest rates, here are some reasons American's credit card debt levels are still rising.
  6. Entrepreneurship

    Small Business Financing: Debt Or Equity?

    There are two sources of financing for small businesses: debt and equity financing. This article explains both.
  7. Retirement

    Boomers Staying In Debt To Retire In Comfort

    There's a growing trend of retiring baby boomers staying in debt in order to maintain their current lifestyles.
  8. Credit & Loans

    Worst Case Scenario For Credit Card Debt

    You may have heard of the dreaded Chapter 13 for personal bankruptcy, but there's something even worse - Chapter 7.
  9. Credit & Loans

    Sizing Up Debt

    Ever wonder if the different types of debt are good or bad? Read on and we'll tell you.
  10. Personal Finance

    The 3 Best Government Money Market Funds (CPFXX, SPAXX)

    Discover three of the most popular and best performing government money market funds well suited for investors seeking capital preservation and minimal risk.

You May Also Like

Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center