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After-Tax Cost of Debt Formula

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After Tax Cost of Debt is the effective interest rate a company pays on its borrowed funds after accounting for the tax deductibility of interest expenses. Check FAQs

ATCD = (R f + CS P) \cdot (1 - T r)

ATCD - After Tax Cost of Debt?R_f - Risk Free Rate?CS_P - Credit Spread?T_r - Tax Rate?

After-Tax Cost of Debt Example

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Here is how the After-Tax Cost of Debt equation looks like with Values.

Here is how the After-Tax Cost of Debt equation looks like with Units.

Here is how the After-Tax Cost of Debt equation looks like.

0.0315 = (0.015 + 0.03) \cdot (1 - 0.3)

0.0315 = (0.015 + 0.03) \cdot (1 - 0.3)

0.0315 = (0.015 + 0.03) \cdot (1 - 0.3)

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After-Tax Cost of Debt Solution

Follow our step by step solution on how to calculate After-Tax Cost of Debt?

FIRST Step Consider the formula

ATCD = (R f + CS P) \cdot (1 - T r)

Next Step Substitute values of Variables

∴

ATCD = (0.015 + 0.03) \cdot (1 - 0.3)

Next Step Prepare to Evaluate

∴

ATCD = (0.015 + 0.03) \cdot (1 - 0.3)

LAST Step Evaluate

∴

ATCD = 0.0315

After-Tax Cost of Debt Formula Elements

Variables

After Tax Cost of Debt

After Tax Cost of Debt is the effective interest rate a company pays on its borrowed funds after accounting for the tax deductibility of interest expenses.

Symbol: ATCD

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find After Tax Cost of Debt

Risk Free Rate

The Risk Free Rate is the theoretical rate of return of an investment with zero risks.

Symbol: R_f

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Risk Free Rate

Credit Spread

Credit Spread refers to the difference in yield or interest rate between two debt securities with similar maturities but differing credit qualities.

Symbol: CS_P

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Credit Spread

Tax Rate

Tax Rate refers to the percentage at which a taxpayer's income or the value of a good or service is taxed.

Symbol: T_r

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Tax Rate

Other formulas in Capital Budgeting category

Go Payback Period

PBP = \frac{Initial Invt}{C f}

Go Cost of Retained Earnings

C RE = (\frac{D}{P c}) + g

Go Cost of Debt

R d = Int.E \cdot (1 - T r)

Go Accounting Rate of Return

ARR = (\frac{AP}{Initial Invt}) \cdot 100

How to Evaluate After-Tax Cost of Debt?

After-Tax Cost of Debt evaluator uses After Tax Cost of Debt = (Risk Free Rate+Credit Spread)*(1-Tax Rate) to evaluate the After Tax Cost of Debt, The After-Tax Cost of Debt formula is defined as the effective interest rate a company pays on its borrowed funds after accounting for the tax deductibility of interest expenses. After Tax Cost of Debt is denoted by ATCD symbol.

How to evaluate After-Tax Cost of Debt using this online evaluator? To use this online evaluator for After-Tax Cost of Debt, enter Risk Free Rate (R_f), Credit Spread (CS_P) & Tax Rate (T_r) and hit the calculate button.

FAQs on After-Tax Cost of Debt

What is the formula to find After-Tax Cost of Debt?

The formula of After-Tax Cost of Debt is expressed as After Tax Cost of Debt = (Risk Free Rate+Credit Spread)*(1-Tax Rate). Here is an example- 0.0315 = (0.015+0.03)*(1-0.3).

How to calculate After-Tax Cost of Debt?

With Risk Free Rate (R_f), Credit Spread (CS_P) & Tax Rate (T_r) we can find After-Tax Cost of Debt using the formula - After Tax Cost of Debt = (Risk Free Rate+Credit Spread)*(1-Tax Rate).

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After-Tax Cost of Debt Formula

After-Tax Cost of Debt Example

After-Tax Cost of Debt Solution

After-Tax Cost of Debt Formula Elements

Other formulas in Capital Budgeting category

How to Evaluate After-Tax Cost of Debt?

FAQs on After-Tax Cost of Debt

Variable Name