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Cost Of Debt Calculator

Work out cost of debt instantly with clear inputs, formula shown and shareable results.

About Cost Of Debt Calculator

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.

Formula

Cost of debt

Pre-tax = interest / debt; after-tax = pre-tax × (1 - t); shield = interest × t

Worked example

With the default values below, Cost Of Debt Calculator returns After-Tax Cost Of Debt of 6.7500%. Change any input above and every figure here is recalculated in your browser.

Inputs used

Annual Interest Expenseminimum 0
4,500,000
Total Debt Outstandingminimum 0
50,000,000
Tax Rateaccepts 0–60 %
25 %
Risk-Free Rateaccepts 0–100 %
7 %

Results

After-Tax Cost Of Debt
6.7500%
Pre-Tax Cost Of Debt
9.0000%
Annual Tax Shield
$1,125,000.00
Spread Over The Risk-Free Rate In Basis Points
200.0

Step by step

  1. 1Values used
  2. 2Cost of debt
  3. 3After-Tax Cost Of Debt= 6.7500
  4. 4Pre-Tax Cost Of Debt= 9.0000
  5. 5Annual Tax Shield= 1,125,000.00
  6. 6Spread Over The Risk-Free Rate In Basis Points= 200.0

Assumptions and limits

  • The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation into account.
  • Figures are rounded for display to 4 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
  • 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.
  • This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

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.

Frequently Asked Questions

Should the marginal or average rate be used?

For valuation, the marginal rate on new borrowing. The average from the accounts reflects historical, possibly cheaper, debt.

Is the tax shield always available?

Only if there are profits to shelter. Loss-making firms get no immediate benefit, so their effective cost is the pre-tax rate.

Related Calculators

Cost Of Debt Calculator – Calculate After-Tax Cost Of Debt