What is cost of debt capital?
3 years ago
Financial Management
The cost of debentures and long term loans is the contractual interest rate adjusted for the tax liability of the company or put simply,
K = (1 – T) R
where, K = Cost of debt capital
T = Tax rate
R = Contractual interest rate
As interest is tax deductible, it is customary to compute the cost of borrowed funds as an after effective rate of tax
Sanisha Maharjan
Jan 18, 2022