Calculating your after-tax cost of debt is straightforward once you know the Cost of Debt formula and what each input means. This guide explains the method in plain language, walks through a manual calculation, and gives worked examples you can follow — then you can do it instantly with the Cost of Debt Calculator.
What is Cost of Debt?
The Cost of Debt calculation tells you your after-tax cost of debt from a few simple inputs. The figure you are solving for here is the after-tax cost of debt, expressed in percent.
The Cost of Debt formula
The core formula is:
After-tax cost of debt = Annual interest expense ÷ Total debt × 100 × (1 - Tax rate ÷ 100)Here is what each input means:
- Annual interest expense — a money amount. Example: ₹50,000.
- Total debt — a money amount. Example: ₹10,00,000.
- Tax rate — a percentage, such as an annual rate. Example: 3%.
How to calculate it step by step
- Write down the annual interest expense (for example, ₹50,000).
- Write down the total debt (for example, ₹10,00,000).
- Write down the tax rate (for example, 3%).
- Apply the formula above to get your after-tax cost of debt.
- Double-check the result with the Cost of Debt Calculator.
Worked examples
Example 1
| Input / Output | Value |
|---|---|
| Annual interest expense | ₹50,000 |
| Total debt | ₹10,00,000 |
| Tax rate | 3% |
| After-tax cost of debt | 3.5000% |
| Pre-tax cost of debt | 5.0000% |
With annual interest expense of ₹50,000, total debt of ₹10,00,000 and tax rate of 3%, the after-tax cost of debt works out to 3.5000%.
Example 2
With annual interest expense of ₹1,00,000, total debt of ₹10,00,000 and tax rate of 3%, the after-tax cost of debt works out to 7.0000%.
| Result | Value |
|---|---|
| After-tax cost of debt | 7.0000% |
| Pre-tax cost of debt | 10.0000% |
Example 3
With annual interest expense of ₹25,000, total debt of ₹10,00,000 and tax rate of 3%, the after-tax cost of debt works out to 1.7500%.
| Result | Value |
|---|---|
| After-tax cost of debt | 1.7500% |
| Pre-tax cost of debt | 2.5000% |
Tips for an accurate result
- Keep your units consistent — mixing, say, months with years or grams with kilograms is the most common source of error.
- Round only at the very end. Rounding inputs early can shift the final answer noticeably.
- Re-run the numbers whenever an input changes, rather than estimating from an old result.
- Annual rates must be converted to the period you are calculating for (for example, divide an annual rate by 12 for a monthly figure).
Prefer not to do the maths by hand? — the Cost of Debt Calculator does it instantly, for free, with the formula and a worked example built in.
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