Cost of Debt

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 Videos

  1. Customer Information File - CIF

    A customer information file is a collection of data about a bank or credit union patron.
  2. Float

    Float is money in the banking system that is briefly counted twice due to delays in processing checks.
  3. Sinking Fund

    A sinking fund is a way for companies to pay off part of their bond issue before it reaches maturity. By eliminating its debt gradually, the bond issuer is more likely to attract investors concerned about default risk.
  4. The Debt To Equity Ratio

    The debt to equity ratio identifies companies that are highly leveraged and therefore a higher risk for investors. Find out how this ratio is calculated and how you can use it to evaluate a stock.

comments powered by Disqus
Trading Center