# What is the after tax cost of debt formula?

**after**-

**tax cost of debt**is the interest paid on

**debt**less any income

**tax**savings due to deductible interest expenses. To calculate the

**after**-

**tax cost of debt**, subtract a company's effective

**tax**rate from 1, and multiply the difference by its

**cost of debt**.

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Similarly, why cost of debt is calculated after tax?

**After**-**tax cost of debt** is the net **cost of debt determined** by adjusting the gross **cost of debt** for its **tax** benefits. The reduction in income **tax** due to interest expense is called interest **tax** shield. Due to this **tax** benefit of interest, effective **cost of debt** is lower than the gross **cost of debt**.

Beside above, how do you calculate the cost of debt for WACC? Not only does the **cost of debt**, as a rate, reflect the default risk of a company, it also reflects the level of interest rates in the market. In addition, it is an integral part of **calculating** a company's Weighted Average **Cost** of Capital or **WACC**. The **WACC formula** is = (E/V x Re) + ((D/V x Rd) x (1-T)).

In this way, what is an after tax charge?

**After**-**tax** income is the net income **after** the deduction of all federal, state, and withholding **taxes**. **After**-**tax** income, also called income **after taxes**, represents the amount of disposable income that a consumer or firm has available to spend.

Is WACC after tax?

**WACC** is the average **after**-**tax** cost of a company's various capital sources, including common stock, preferred stock, bonds, and any other long-term debt. In other words, **WACC** is the average rate a company expects to pay to finance its assets.