Cost of Debt Calculator

✖Interest Expense is a non-operating expense shown on the income statement.ⓘ Interest Expense [Int.E]			+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%

✖Cost of Debt is the effective interest rate a company pays on its debt.ⓘ Cost of Debt [R_d]

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Formula

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Cost of Debt

Formula

`"R"_{"d"} = "Int.E"*(1-"T"_{"r"})`

Example

`"94.5"="135"*(1-"0.30")`

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Cost of Debt Solution

STEP 0: Pre-Calculation Summary

Formula Used

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

R_d = Int.E*(1-T_r) --> 135*(1-0.3)

Evaluating ... ...

R_d = 94.5

STEP 3: Convert Result to Output's Unit

94.5 --> No Conversion Required

FINAL ANSWER

94.5 <-- Cost of Debt

(Calculation completed in 00.004 seconds)

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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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< 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)

Cost of Debt Formula

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

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 R_d 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 (T_r) 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 R_d = Int.E*(1-T_r) 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 (T_r). 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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