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). 

You May Also Like

Related Articles
  1. Investing

    Why a Rise In the National Debt Is Good for You

  2. Term

    Debt Consolidation

  3. Credit & Loans

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

  4. Savings

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

  5. Investing Basics

    Using Options To Pay Off Debt

  6. Credit & Loans

    Why Credit Card Debt Levels Are Rising

  7. Entrepreneurship

    Small Business Financing: Debt Or Equity?

Trading Center