After-Tax Cost of Debt Calculator
Calculate the after-tax cost of debt to understand your true borrowing expenses. This calculator helps businesses and investors determine the effective cost of debt financing after accounting for tax benefits, crucial for making informed financial decisions.
After-Tax Cost of Debt
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Tax Savings
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Effective Tax Rate
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Results calculated based on your inputs
About After-Tax Cost of Debt Calculator
The After-Tax Cost of Debt Calculator is an essential financial tool that helps businesses and investors determine the true cost of borrowing money after accounting for tax benefits. Since interest payments on debt are typically tax-deductible, the after-tax cost of debt is lower than the nominal interest rate, making it a critical metric for financial planning and investment analysis.
This calculator uses the formula: After-Tax Cost of Debt = Pre-Tax Cost of Debt × (1 - Tax Rate). For example, if you have a loan with a 6% interest rate and your business is in a 30% tax bracket, your after-tax cost of debt would be 4.2% (6% × 0.7). This lower effective rate makes debt financing more attractive compared to equity financing in many cases.
Understanding your after-tax cost of debt is crucial for capital structure decisions, investment analysis, and comparing different financing options. Business owners use this metric to evaluate whether to take on additional debt, refinance existing loans, or pursue equity financing alternatives. Financial analysts rely on it for company valuations and investment recommendations.