## After-Tax Cost of Debt Solution

STEP 0: Pre-Calculation Summary
Formula Used
After Tax Cost of Debt = (Risk Free Rate+Credit Spread)*(1-Tax Rate)
ATCD = (Rf+CSP)*(1-Tr)
This formula uses 4 Variables
Variables Used
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.
Risk Free Rate - The Risk Free Rate is the theoretical rate of return of an investment with zero risks.
Credit Spread - Credit Spread refers to the difference in yield or interest rate between two debt securities with similar maturities but differing credit qualities.
Tax Rate - Tax Rate refers to the percentage at which a taxpayer's income or the value of a good or service is taxed.
STEP 1: Convert Input(s) to Base Unit
Risk Free Rate: 0.015 --> No Conversion Required
Credit Spread: 0.03 --> No Conversion Required
Tax Rate: 0.3 --> No Conversion Required
STEP 2: Evaluate Formula
Substituting Input Values in Formula
ATCD = (Rf+CSP)*(1-Tr) --> (0.015+0.03)*(1-0.3)
Evaluating ... ...
ATCD = 0.0315
STEP 3: Convert Result to Output's Unit
0.0315 --> No Conversion Required
0.0315 <-- After Tax Cost of Debt
(Calculation completed in 00.004 seconds)
You are here -
Home »

## Credits

Created by Vishnu K
BMS College of Engineering (BMSCE), Bangalore
Vishnu K has created this Calculator and 200+ more calculators!
Verified by Kashish Arora
Satyawati College (DU), New Delhi
Kashish Arora has verified this Calculator and 50+ more calculators!

## <Capital Budgeting Calculators

Cost of Retained Earnings
​ Go Cost of Retained Earnings = (Dividend/Current Stock Price)+Growth Rate
After-Tax Cost of Debt
​ Go After Tax Cost of Debt = (Risk Free Rate+Credit Spread)*(1-Tax Rate)
Payback Period
​ Go Payback Period = Initial Investment/Cashflow per Period
Cost of Debt
​ Go Cost of Debt = Interest Expense*(1-Tax Rate)

## After-Tax Cost of Debt Formula

After Tax Cost of Debt = (Risk Free Rate+Credit Spread)*(1-Tax Rate)
ATCD = (Rf+CSP)*(1-Tr)

## What is After Tax Cost of Debt?

The after-tax cost of debt is a financial metric that calculates the effective interest rate a company pays on its debt after factoring in the tax benefits associated with interest payments. It is a critical component in financial analysis, capital budgeting, and determining a company's overall cost of capital. Understanding the after-tax cost of debt helps businesses make informed financing decisions and assess the true cost of debt financing.
By deducting the tax shield from the nominal interest rate, the after-tax cost of debt provides a more accurate measure of the true cost of debt financing for a company. It accounts for the tax advantages associated with debt, making it a critical factor in evaluating financing options, determining capital structure, and calculating the weighted average cost of capital (WACC) for the company. Companies use the after-tax cost of debt alongside other cost of capital components to make optimal financial decisions and maximize shareholder value.

## How to Calculate After-Tax Cost of Debt?

After-Tax Cost of Debt calculator uses After Tax Cost of Debt = (Risk Free Rate+Credit Spread)*(1-Tax Rate) to calculate 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 calculate After-Tax Cost of Debt using this online calculator? To use this online calculator for After-Tax Cost of Debt, enter Risk Free Rate (Rf), Credit Spread (CSP) & Tax Rate (Tr) and hit the calculate button. Here is how the After-Tax Cost of Debt calculation can be explained with given input values -> 0.0315 = (0.015+0.03)*(1-0.3).

### FAQ

What is 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 and is represented as ATCD = (Rf+CSP)*(1-Tr) or After Tax Cost of Debt = (Risk Free Rate+Credit Spread)*(1-Tax Rate). The Risk Free Rate is the theoretical rate of return of an investment with zero risks, Credit Spread refers to the difference in yield or interest rate between two debt securities with similar maturities but differing credit qualities & Tax Rate refers to the percentage at which a taxpayer's income or the value of a good or service is taxed.
How to calculate 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 is calculated using After Tax Cost of Debt = (Risk Free Rate+Credit Spread)*(1-Tax Rate). To calculate After-Tax Cost of Debt, you need Risk Free Rate (Rf), Credit Spread (CSP) & Tax Rate (Tr). With our tool, you need to enter the respective value for Risk Free Rate, Credit Spread & Tax Rate and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.
Let Others Know