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. 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.
  2. Credit & Loans

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

    Though many individuals eagerly await the possibility of student loan forgiveness, strict stipulations and changing laws may leave some debt-burdened grads with huge un-paid tabs and reduced ...
  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. Fundamental Analysis

    Regional, Community Bank Stocks the Next Big Thing

    The very best opportunities are often in the less exciting stocks and sectors. Community banks may not be sexy, but they can be very profitable investments.

You May Also Like

Hot Definitions
  1. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  2. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  3. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  4. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  5. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  6. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!