Investing
After tax cost of debt
Interest is generally deductible, so the true cost to the company is lower.
The Formula
Rd x (1 - T)
Interest is generally deductible, so the true cost to the company is lower.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| Rd | Cost of debt | fraction per year | The rate the company pays on its borrowings. |
| T | Tax rate | fraction | The corporate tax rate applied to profits. |
What Each Symbol Means
Rdfraction per year
Cost of debt
The rate the company pays on its borrowings.
Tfraction
Tax rate
The corporate tax rate applied to profits.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate weighted average cost of capital page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Weighted Average Cost Of Capital, filed under Finance. Every number the guide produces comes from substituting into this one line.