If a company is subject to income tax, then the after-tax cost of debt for the company will be less than the before-tax cost of debt.

Question

Quizplus · Accepted Answer

The after-tax cost of debt is calculated by subtracting the tax rate from the before-tax cost of debt. Since the interest payments on debt are tax-deductible, the company will have a lower tax burden and therefore a lower after-tax cost of debt.

If a Company Is Subject to Income Tax, Then the After-Tax