What is the after tax cost of debt formula?
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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.