After-Tax Cost of Debt Calculator

Your details

Simple uses a known interest rate. Effective blends multiple debt instruments from your income statement. Derived calculates your actual tax rate from pre-tax and net income.
The stated annual interest rate, coupon rate, or yield to maturity on your debt before any tax adjustment.
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The marginal tax rate your company pays on additional taxable income. In the US this is typically 21% (federal) plus any state taxes.
%
Optional: enter your total debt to see the annual dollar value of the interest tax shield.
Currency
After-tax cost of debtModerate cost of debt
4.5%

The effective annual cost of debt after the interest tax deduction

Pre-tax cost of debt0.06%
Effective tax rate used0.25%
Interest tax shield (rate reduction)0.02%
Annual interest tax savings$30,000
4.5% %
Very low<3%Moderate3%-6%Elevated6%-10%High10%+
Pre-tax rate0.06%
After-tax rate4.5%
Tax shield0.02%

Your after-tax cost of debt is 4.50% (pre-tax: 6.00%).

  • Your stated (pre-tax) borrowing rate is 6.00%, but the tax deductibility of interest reduces your real cost to 4.50%.
  • The interest tax shield saves you 1.50 percentage points, because at a 25% tax rate the government effectively subsidises that portion of your interest.
  • On your stated debt balance, the tax shield generates roughly $30,000 in annual tax savings.
  • Use this figure as the debt component in a Weighted Average Cost of Capital (WACC) calculation to compare against your return on invested capital.

Next stepPlug this into your WACC formula alongside your cost of equity and debt-to-equity ratio to find your blended hurdle rate for capital budgeting decisions.

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