Interest expense is deductible before taxes and therefore has an after-tax cost equal to the interest paid times (1 - tax rate).

Question

Quizplus · Accepted Answer

Interest expense is deductible from income before taxes, meaning it reduces the amount of income subject to taxation. This reduces the overall tax liability, resulting in a lower after-tax cost of the interest expense. The after-tax cost is equal to the interest paid times (1 - tax rate), where the tax rate is the applicable tax rate for the entity in question. Therefore, the statement is true.

Interest Expense Is Deductible Before Taxes and Therefore Has an After-Tax