The cost of debt is equal to the current bond yield on bonds of similar risk class, adjusted for the corporate tax rate.

Question

Quizplus · Accepted Answer

The cost of debt is the interest rate paid by a company on its debt. This interest rate is typically determined by the bond yield on bonds of similar risk class. However, the cost of debt is further adjusted for the corporate tax rate since interest payments on debt are tax-deductible. Therefore, the cost of debt is equal to the current bond yield on bonds of similar risk class, adjusted for the corporate tax rate.

The Cost of Debt Is Equal to the Current Bond