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after-tax cost of debt

(Dictionary)

Author:
Harold Averkamp, CPA, MBA

Definition

The interest rate of debt (bonds, loans) after deducting the income tax savings. For example, if
a corporation has issued bonds with an interest rate of 8% and the corporation’s income tax rate
is 25%, the after-tax cost of the bonds’ interest is 6% (8% minus the tax savings equal to 25% of
8%).

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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