Cost of Debt
Also called: after-tax cost of debt, borrowing cost
The cost of debt is the rate a company pays on its borrowings, and what matters for valuation is the after-tax version, since interest is deductible. A 6% coupon at a 25% tax rate is a 4.5% real cost. That deductibility is the tax shield — the mathematical reason debt is cheaper than equity and the reason capital structure has an optimum rather than none.
Formula
After-tax cost of debt = Interest rate × (1 − Tax rate)
Where this is taught
Definitions are the trailer. These free levels turn Cost of Debt into something you play — one bite-size lesson, with worked examples, a quiz and XP.