Respuesta :
We calculate before-tax cost of debt financing of bonds is described below.
Explanation:
- The cost of debt capital reflects the risk level. If your company has maximum chance of defaulting on its debt, the lender will assign a higher interest rate to the loan, and thus the total cost of the debt will be higher.
- Before-tax Cost of Debt Capital = Coupon Rate on Bonds
- The cost of debt is the effective interest rate for a company which pays on its debts.The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking taxes into account. It's the cost of debt, such as bonds and loans, among others.
- Divide the company's after-tax cost of debt by the result to calculate the company's before-tax cost of debt. In this example, if the company's after-tax cost of debt equals $830,000. You'll then divide $830,000 by 0.71 to find a before-tax cost of debt of $1,169,014.08.
- The cost of debt before and after taxes lies in the fact that interest expenses are deductible.
