## Cost of Debt Solution

STEP 0: Pre-Calculation Summary
Formula Used
Cost of Debt = Interest Expense*(1-Tax Rate)
Rd = Int.E*(1-Tr)
This formula uses 3 Variables
Variables Used
Cost of Debt - Cost of Debt is the effective interest rate a company pays on its debt.
Interest Expense - Interest Expense is a non-operating expense shown on the income statement.
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
Interest Expense: 135 --> No Conversion Required
Tax Rate: 0.3 --> No Conversion Required
STEP 2: Evaluate Formula
Substituting Input Values in Formula
Rd = Int.E*(1-Tr) --> 135*(1-0.3)
Evaluating ... ...
Rd = 94.5
STEP 3: Convert Result to Output's Unit
94.5 --> No Conversion Required
94.5 <-- Cost of Debt
(Calculation completed in 00.004 seconds)
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## 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
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## <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)

## Cost of Debt Formula

Cost of Debt = Interest Expense*(1-Tax Rate)
Rd = Int.E*(1-Tr)

## What is Cost of Debt?

The cost of debt refers to the effective interest rate a company pays on its borrowed funds. It represents the cost to the company of raising funds through debt financing, and it's a crucial component in determining a company's overall cost of capital. Understanding the cost of debt is essential for financial decision-making, including capital budgeting, project evaluation, and determining optimal capital structure.
In summary, the cost of debt encompasses various factors, including the interest rate on debt, tax advantages, flotation costs, risk premiums, and prevailing market conditions. Understanding and accurately estimating the cost of debt is essential for companies to make informed financing decisions and optimize their capital structure to maximize shareholder value.

## How to Calculate Cost of Debt?

Cost of Debt calculator uses Cost of Debt = Interest Expense*(1-Tax Rate) to calculate 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 Rd symbol.

How to calculate Cost of Debt using this online calculator? To use this online calculator for Cost of Debt, enter Interest Expense (Int.E) & Tax Rate (Tr) and hit the calculate button. Here is how the Cost of Debt calculation can be explained with given input values -> 70 = 135*(1-0.3).

### FAQ

What is 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 and is represented as Rd = Int.E*(1-Tr) or Cost of Debt = Interest Expense*(1-Tax Rate). Interest Expense is a non-operating expense shown on the income statement & 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 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 is calculated using Cost of Debt = Interest Expense*(1-Tax Rate). To calculate Cost of Debt, you need Interest Expense (Int.E) & Tax Rate (Tr). With our tool, you need to enter the respective value for Interest Expense & 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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