The after-tax cost of debt is the effective rate that a company pays on its borrowed funds, adjusted for the tax benefits associated with interest payments. Since interest expenses are tax-deductible, the after-tax cost of debt reflects the true cost to the company, making it an essential component in calculating the overall cost of capital. Understanding this concept helps businesses assess their financing strategies and evaluate investment opportunities more effectively.
congrats on reading the definition of after-tax cost of debt. now let's actually learn it.