After-Tax Cost of Debt Calculator

✖The Risk Free Rate is the theoretical rate of return of an investment with zero risks.ⓘ Risk Free Rate [R_f]			+10% -10%
✖Credit Spread refers to the difference in yield or interest rate between two debt securities with similar maturities but differing credit qualities.ⓘ Credit Spread [CS_P]			+10% -10%
✖Tax Rate refers to the percentage at which a taxpayer's income or the value of a good or service is taxed.ⓘ Tax Rate [T_r]			+10% -10%

✖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.ⓘ After-Tax Cost of Debt [ATCD]

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Formula

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After-Tax Cost of Debt

Formula

`"ATCD" = ("R"_{"f"}+"CS"_{"P"})*(1-"T"_{"r"})`

Example

`"0.0315"=("0.015"+"0.03")*(1-"0.30")`

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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 = (R_f+CS_P)*(1-T_r)
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 = (R_f+CS_P)*(1-T_r) --> (0.015+0.03)*(1-0.3)

Evaluating ... ...

ATCD = 0.0315

STEP 3: Convert Result to Output's Unit

0.0315 --> No Conversion Required

FINAL ANSWER

0.0315 <-- After Tax Cost of Debt

(Calculation completed in 00.004 seconds)

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Created by Vishnu K

BMS College of Engineering (BMSCE), Bangalore

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Satyawati College (DU), New Delhi

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< 18 Capital Budgeting Calculators

Overall Cost of Capital

Go Overall Cost of Capital = (Market Value of the Firm’s Equity)/(Market Value of the Firm’s Equity+Market Value of the Firm’s Debt)*Required Rate of Return+(Market Value of the Firm’s Debt)/(Market Value of the Firm’s Equity+Market Value of the Firm’s Debt)*Cost of Debt*(1-Tax Rate)

Discounted Payback Period

Go Discounted Payback Period = ln(1/(1-((Initial Investment*Discount Rate)/Periodic Cash Flow)))/ln(1+Discount Rate)

Net Present Value (NPV) for even cash flow

Go Net Present Value (NPV) = Expected Cash Flow*((1-(1+Rate of Return)^-Number of Periods)/Rate of Return)-Initial Investment

Capital Asset Pricing Model

Go Expected Return on Investment = Risk Free Rate+Beta on Investment*(Expected Return on Market Portfolio-Risk Free Rate)

Double Declining Balance Method

Go Depreciation Expense = (((Purchase Cost-Salvage Value)/Useful Life Assumption)*2)*Beginning PP&E Book Value

Modified Internal Rate of Return

Go Modified Internal Rate of Return = 3*((Present Value/Cash Outlay)^(1/Number of Years)*(1+Interest)-1)

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)

Beginning Inventory

Go Beginning Inventory = Cost of Goods Sold-Purchases+Ending Inventory

Terminal Value using Perpetuity Method

Go Terminal Value = Free Cash Flow/(Discount Rate-Growth Rate)

Trade Discount

Go Trade Discount = multi(List Price,Trade Discount Rate)

Expected Monetary Value

Go Expected Monetary Value = multi(Probability,Impact)

Accounting Rate of Return

Go Accounting Rate of Return = (Average Annual Profit/Initial Investment)*100

Inventory Carrying Cost

Go Inventory Carrying Cost = (Total Carrying Cost/Total Inventory Value)*100

Certainty Equivalent Cashflow

Go Certainty Equivalent Cashflow = Expected Cash Flow/(1+Risk Premium)

Payback Period

Go Payback Period = Initial Investment/Cashflow per Period

Terminal Value using Exit Multiple Method

Go Terminal Value = EBITDA at Last Period*Exit Multiple

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 = (R_f+CS_P)*(1-T_r)

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 (R_f), Credit Spread (CS_P) & Tax Rate (T_r) 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 = (R_f+CS_P)*(1-T_r) 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 (R_f), Credit Spread (CS_P) & Tax Rate (T_r). 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.

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