A firm's cost of debt can be
estimated easier than its cost of equity
obtained by talking to investment bankers
obtained by checking yields on publicly traded bonds.
The effective interest rate that a business pays on its debts, such as bonds and loans, is known as the cost of debt. The cost of debt may be expressed as either the before-tax cost of debt, which is the amount owed by the business before taxes, or the after-tax cost of debt.
The annual interest rate on the funds a business borrows, or the total amount of interest a firm will pay to borrow, determines the cost of debt for that business.
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