Cost of Debt Calculator
Determine a company’s pre-tax and after-tax Cost of Debt. Analyze corporate tax shield savings offsets from interest expenses progressively.
Investment-Grade Corporate
High-Yield Leveraged
Small Business Line
Calculate Cost of Debt
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After-Tax Cost of Debt
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Enter parameters on the left to calculate effective interest rates.
*Accounts for corporate interest expense tax shield deductions.
Pre-Tax Cost of Debt:
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Tax Shield Savings Rate:
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Tax Savings Amount (Estimated):
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Pre-Tax vs. After-Tax Rate Offset
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Understanding Cost of Debt
The Cost of Debt measures the effective interest rate a business pays on its long-term notes, bonds, and bank liabilities. In WACC and capital budgeting calculations, corporate debt is adjusted to reflect the tax advantages of debt financing.
How the Tax Shield Works
Because corporate interest payments are tax-deductible expenses, interest payments reduce the firm’s taxable income. As a result, the government effectively subsidizes a portion of the interest expense.
Mathematical Formulas
1. Pre-Tax Cost of Debt (from absolute figures):
Pre-Tax Rate (%) = ( Annual Interest Expense / Total Debt ) × 100
2. After-Tax Cost of Debt:
After-Tax Rate (%) = Pre-Tax Rate × ( 1 – Corporate Tax Rate )