Calculate the cost of debt after the interest tax shield.
Please do not make financial decisions based on these results.
What is the After-tax Cost of Debt Calculator?
Calculate the cost of debt after the interest tax shield. To use the After-tax Cost of Debt Calculator, enter interest rate, tax rate, debt; it returns after-tax cost of debt, annual interest, annual tax shield, and shows them instantly as you type.
Where the After-tax Cost of Debt Calculator fits
Calculate the cost of debt after the interest tax shield. The main figure it returns is the After-tax cost of debt, worked out from the values you enter.
It belongs with the other bonds & credit ratios tools. If you are comparing options or checking a result from another angle, try the Debt Service Coverage Ratio Calculator (DSCR), Debt to Asset Ratio Calculator or the Debt-to-Capital Ratio Calculator.
How to use the After-tax Cost of Debt Calculator
- Enter your numbers. Start with Interest rate (%), Tax rate (%), Debt ($). Take the price, coupon and maturity from the bond’s listing. Fields marked optional can stay at zero.
- Read the result. The highlighted box gives the After-tax cost of debt, and the cards below show Annual interest, Annual tax shield. Tables and charts break it down further.
- Test other scenarios. Results update as you type. Change one value at a time to see what drives the answer, and press Reset to go back to the defaults.
Formula and how it works
Example with real numbers
Here is the After-tax Cost of Debt Calculator using the default values shown in the calculator above:
Inputs
| Interest rate (%) | 7.5 |
|---|---|
| Tax rate (%) | 24 |
| Debt ($) | 2,000,000 |
Results
| After-tax cost of debt | 5.7% |
|---|---|
| Annual interest | $150,000.00 |
| Annual tax shield | $36,000.00 |
With these inputs the calculator returns After-tax cost of debt: 5.7%. Change any value in the calculator to see how the result moves.
What if you change one input?
Sensitivity check: raising Interest rate (%) from 7.5 to 9 (about 20% higher) and leaving everything else as in the example above changes the results like this:
| Result | Example | After the change | Change |
|---|---|---|---|
| After-tax cost of debt | 5.7% | 6.84% | +20% |
| Annual interest | $150,000.00 | $180,000.00 | +20% |
| Annual tax shield | $36,000.00 | $43,200.00 | +20% |
The input that moves the result most is the one to check twice. Change it in the calculator above to test your own case.
What the results tell you
The results panel of the After-tax Cost of Debt Calculator reports After-tax cost of debt, annual interest and annual tax shield. Compare these figures while changing one input at a time, and use the related calculators below to look at the same situation from another angle.
Method and limits. This calculator applies the formula in the section above to your inputs, in your browser; nothing you enter is stored on our servers. The result is only as accurate as the numbers you enter and the formula shown above. It is for information, not financial, tax or legal advice.
Frequently asked questions
Why is after-tax cost lower?
Interest is deductible, which shields part of it from tax.
How are bond prices calculated?
The price is the present value of every coupon plus the face value, discounted at the market yield.
What do solvency ratios tell me?
Ratios such as debt to equity, interest coverage and the Altman Z-score show how safely a company can meet its debts.
Are the results guaranteed?
No. Results depend entirely on the numbers you enter and the formulas shown on this page. Please do not make financial decisions based on them alone; confirm important figures with a licensed professional.
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