The cost of debt is equal to one minus the marginal tax rate multiplied by the average coupon rate on all outstanding debt.

Name: The cost of debt is equal to one minus the marginal tax rate multiplied by the average coupon rate on all outstanding debt.
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Question

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The cost of debt is calculated as the average coupon rate on all outstanding debt multiplied by (one minus the marginal tax rate), not the other way around. This formula accounts for the tax deductibility of interest expenses.

The Cost of Debt Is Equal to One Minus the Marginal