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

Quizplus · Accepted Answer

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. The tax shield from the deductibility of interest expenses reduces the effective cost of debt.

The Cost of Debt Is Equal to One Minus the Marginal