Cost of Debt Calculator
Calculate pre-tax and after-tax cost of debt from interest expense, debt balance and tax rate.
How to Use the Cost of Debt Calculator
Enter the company’s pre-tax cost of debt and the applicable tax rate. The calculator estimates after-tax cost of debt by multiplying the pre-tax rate by one minus the tax rate.
Practical Example
If pre-tax debt costs 7% and the tax rate is 25%, the after-tax cost of debt is 5.25%.
Factors That Affect Cost of Debt
Credit quality, interest rates, debt maturity, collateral, lender terms, tax rules and refinancing conditions can all affect borrowing costs.
Frequently Asked Questions
Why use after-tax cost of debt?
Interest expense may create a tax shield, so after-tax debt cost is often used in WACC calculations.
What is the formula?
After-Tax Cost of Debt = Pre-Tax Cost × (1 − Tax Rate).
Is the tax shield always available?
No. Tax position and local rules determine whether interest deductions provide a benefit.
Methodology and Interpretation
After-tax cost of debt is commonly estimated from the borrowing rate multiplied by one minus the applicable tax rate when interest is tax-deductible. Actual debt cost can differ across instruments, maturities, fees, credit spreads and tax circumstances.