Cost of Debt

Cost of Debt:

It is the main technique of cost of capital in finance and financial management. The Cost of debt is computed on the debt, bonds, loan or debentures via multiplying interest rate with certain amount of debt. When rate is not given, then you can too compute cost of debt rate. This rate is termed as Kd.

Cost of Debt without Any Adjustment (Kd) = Amount of Interest / Amount of Loan X 100

In situation, company issues the bonds or debenture on premium, at that time; we can compute cost of debt by the formula shown below:

Cost of Debt (Kd) = Interest amount/ (Amount of debenture + Amount of premium) X 100

In situation, company issues the bonds or debenture on discount, at that time; we can compute cost of debt by the formula shown below:

Cost of Debt (Kd) = Interest Amount/ (Amount of Debenture – Amount of Discount) X 100

When we have to compare cost of debt with the cost of equity, then we have to compute it after adjustment of tax since interest is deducted from gain before tax although dividend is removed from gain after tax.

Cost of Debt = Amount of Interest (1 – Tax Rate) / Amount of Loan X 100

For illustration, interest rate of company is 10% before tax; compute cost of debt after tax of 30%

Cost of Debt = 10 % X (1-30%) = 7%

Latest technology based Finance Online Tutoring Assistance

Tutors, at the www.tutorsglobe.com, take pledge to provide full satisfaction and assurance in Finance help via online tutoring. Students are getting 100% satisfaction by online tutors across the globe. Here you can get homework help for Finance, project ideas and tutorials. We provide email based Finance help. You can join us to ask queries 24x7 with live, experienced and qualified online tutors specialized in Finance. Through Online Tutoring, you would be able to complete your homework or assignments at your home. Tutors at the TutorsGlobe are committed to provide the best quality online tutoring assistance for Finance Homework help and assignment help services. They use their experience, as they have solved thousands of the Finance assignments, which may help you to solve your complex issues of Finance. TutorsGlobe assure for the best quality compliance to your homework. Compromise with quality is not in our dictionary. If we feel that we are not able to provide the homework help as per the deadline or given instruction by the student, we refund the money of the student without any delay.

©TutorsGlobe All rights reserved 2022-2023.