Cost of debt

The cost of debt the required return by an lender for a borrowed amount. For the company, it can be seen as a cost as the interest paid on the debt is categorized as an expense. It is usually noted by $K_{d}$.

The gross Cost of Debt can be computed as the total yearly amount of interest paid on the total amount borrowed.

As interests are deductible from the tax form, the company usually take only in account the after-tax cost of debt:

XXXXX

The cost of debt is one of the input for the Weighted Cost of Capital which gives the cost of the capital sources, taking into account origin of it.

See also

Weighted Cost of Capital Cost of Equity