Work out cost of debt instantly with clear inputs, formula shown and shareable results.
The effective cost of debt is interest expense over debt outstanding. Because interest is deductible, the cost to shareholders is the after-tax figure, and the difference is the tax shield the borrowing generates each year.
Cost of debt
Pre-tax = interest / debt; after-tax = pre-tax × (1 - t); shield = interest × t
Figures are estimates for planning only. Market returns are not guaranteed, and rates, limits and tax rules change. This is not financial or tax advice — speak to a qualified adviser before acting.
For valuation, the marginal rate on new borrowing. The average from the accounts reflects historical, possibly cheaper, debt.
Only if there are profits to shelter. Loss-making firms get no immediate benefit, so their effective cost is the pre-tax rate.