After-Tax Cost of Debt Calculator — WACC Component
Find the effective annual cost of corporate debt after accounting for the tax deductibility of interest payments — a key input for the weighted average cost of capital (WACC).
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Effective annual cost after the interest tax deduction
4.5%
After-tax rateAfter-tax cost
75%
Tax shield (saved)
25%
- 1
Tax adjustment factor
1 − 25 ÷ 100 = 0.75Fraction of the pre-tax rate that remains after the corporate interest-tax deduction. - 2
After-tax cost of debt
6 × 0.75 = 4.50
How does this calculator work?
After-tax cost of debt = Pre-tax rate × (1 − Corporate tax rate). Interest is tax-deductible, so a 6% coupon at a 25% tax rate costs the company only 4.5% net. This after-tax figure is the debt component of WACC. Use the marginal corporate tax rate and adjust downward if interest deductions are capped in your jurisdiction.
Formula
How this is calculated
Interest payments on corporate debt are generally tax-deductible under most tax regimes, meaning the government effectively subsidises part of the borrowing cost. The after-tax cost of debt captures this subsidy: if a company pays 6% interest and faces a 25% marginal corporate tax rate, the real cost is 6% × (1 − 0.25) = 4.5%. The 1.5 percentage-point saving is the tax shield.
The pre-tax cost of debt is typically the yield to maturity on outstanding bonds or the weighted average coupon rate across the company's debt facilities. The tax rate should be the marginal corporate income tax rate applicable to interest deductions in the relevant jurisdiction, not the effective (average) rate. In countries where interest is not fully deductible (for example due to thin-capitalisation rules or EBITDA-based limits under BEPS Pillar Two), the effective tax rate on interest may be lower than the statutory rate — this calculator accepts any rate you enter, so adjust accordingly.
The after-tax cost of debt is one of the two rate inputs for WACC: WACC = Kd × (1 − T) × (D / V) + Ke × (E / V), where D and E are debt and equity values and V is total firm value. A lower after-tax cost of debt (from a higher tax rate or deductible structure) reduces WACC and increases project valuations.
Frequently asked questions
Interest is tax-deductible, so the actual cash outflow to the company is less than the nominal coupon payment. Using the after-tax rate correctly reflects the true economic cost of debt financing and avoids overstating WACC.
Use the marginal corporate tax rate — the rate that applies to the next dollar of taxable income — not the effective (average) rate. The tax shield on new interest accrues at the marginal rate. In practice many analysts use the statutory headline rate as a proxy.
Many jurisdictions cap interest deductions (for example to 30% of EBITDA under OECD BEPS recommendations). If deductions are restricted, your effective tax benefit on interest is lower. You can model this by entering a reduced effective tax rate — for instance, if only 70% of interest is deductible at a 30% tax rate, enter 21% (= 30% × 70%) as the tax rate in this calculator.
Also known as
TG we-Calculate Editorial Team. (2026). After-Tax Cost of Debt Calculator — WACC Component [Online calculator]. TG we-Calculate. https://we-calculate.com/calculator/after-tax-cost-of-debt-calculator
TG we-Calculate Editorial Team. "After-Tax Cost of Debt Calculator — WACC Component." TG we-Calculate. 2026. https://we-calculate.com/calculator/after-tax-cost-of-debt-calculator.
TG we-Calculate Editorial Team, "After-Tax Cost of Debt Calculator — WACC Component," TG we-Calculate, 2026. [Online]. Available: https://we-calculate.com/calculator/after-tax-cost-of-debt-calculator
@misc{wecalculate_after_tax_cost_of_debt_calculator, title = {After-Tax Cost of Debt Calculator — WACC Component}, author = {{TG we-Calculate Editorial Team}}, howpublished = {\url{https://we-calculate.com/calculator/after-tax-cost-of-debt-calculator}}, year = {2026}, note = {TG we-Calculate} }
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