The cost of debt is equal to one minus the marginal tax rate multiplied by the interest rate on new debt.

Question

Quizplus · Accepted Answer

This is true according to the formula for the after-tax cost of debt, which takes into account the tax savings received from deducting interest expenses on taxable income. The after-tax cost of debt formula is: Cost of Debt (After-Tax) = Cost of Debt (Before-Tax) x (1 - Marginal Tax Rate).

The Cost of Debt Is Equal to One Minus the Marginal