8.7 : חישוב עלות החוב

The cost of debt is the interest rate that a company pays on its debt, adjusted for any tax benefits.

It is an important component in calculating the overall cost of capital for a business.

Consider Pixel Corporation has borrowed one hundred thousand dollars at an interest rate of five percent per annum. The interest expense for the year would be five thousand dollars.

Now, let us assume the company's tax rate is thirty percent. Since interest expense is tax-deductible, the effective cost of the debt is reduced by the tax savings.

The net cost of the debt after taxes is calculated as interest expense minus tax savings, which equals three thousand five hundred dollars.

The effective cost of debt is the net cost divided by the total debt amount, resulting in an effective cost of three point five percent.

This rate accurately reflects the actual cost of the debt to the company after considering the tax implications.

The cost of debt calculation is crucial for the company to gauge the true financial impact of its debts. This enables more informed decision-making regarding its financial management.