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Cost of Debt Formula

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Cost of Debt is the effective interest rate a company pays on its debt. Check FAQs

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

R_d - Cost of Debt?Int.E - Interest Expense?T_r - Tax Rate?

Cost of Debt Example

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With units

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

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

Here is how the Cost of Debt equation looks like.

94.5 = 135 \cdot (1 - 0.3)

94.5 = 135 \cdot (1 - 0.3)

94.5 = 135 \cdot (1 - 0.3)

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Cost of Debt Solution

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

FIRST Step Consider the formula

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

Next Step Substitute values of Variables

∴

R d = 135 \cdot (1 - 0.3)

Next Step Prepare to Evaluate

∴

R d = 135 \cdot (1 - 0.3)

LAST Step Evaluate

∴

R d = 94.5

Cost of Debt Formula Elements

Variables

Cost of Debt

Cost of Debt is the effective interest rate a company pays on its debt.

Symbol: R_d

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Cost of Debt

Interest Expense

Interest Expense is a non-operating expense shown on the income statement.

Symbol: Int.E

Measurement: NAUnit: Unitless

Note: Value can be positive or negative.

Formulas to find Interest Expense

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 After-Tax Cost of Debt

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

Go Accounting Rate of Return

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

How to Evaluate Cost of Debt?

Cost of Debt evaluator uses Cost of Debt = Interest Expense*(1-Tax Rate) to evaluate the Cost of Debt, The Cost of Debt formula is defined as the effective interest rate a company pays on its borrowed funds. It represents the return required by lenders or bondholders for providing debt financing to the company. Cost of Debt is denoted by R_d symbol.

How to evaluate Cost of Debt using this online evaluator? To use this online evaluator for Cost of Debt, enter Interest Expense (Int.E) & Tax Rate (T_r) and hit the calculate button.

FAQs on Cost of Debt

What is the formula to find Cost of Debt?

The formula of Cost of Debt is expressed as Cost of Debt = Interest Expense*(1-Tax Rate). Here is an example- 70 = 135*(1-0.3).

How to calculate Cost of Debt?

With Interest Expense (Int.E) & Tax Rate (T_r) we can find Cost of Debt using the formula - Cost of Debt = Interest Expense*(1-Tax Rate).

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Cost of Debt Formula

Cost of Debt Example

Cost of Debt Solution

Cost of Debt Formula Elements

Other formulas in Capital Budgeting category

How to Evaluate Cost of Debt?

FAQs on Cost of Debt

Variable Name