In evaluating a firm's cost of debt, should one consider corporate tax rate? Why?

Finance Dec 27, 2020

Expert Solution

YES, While evaluation of the cost of debt, one should be considering the corporate tax rate because interest payment on debt is always tax deductible in nature and it will be leading to a lower cost of debt, so one should be considering the corporate tax while calculation of the cost of debt.

Post tax cost of debt= pre-tax cost of debt (1-corporate tax).

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