Bank debt
You'll learn how to calculate the after-tax cost of bank debt, a crucial figure for determining a company's true financing costs. Because interest payments on bank loans are tax-deductible, companies receive tax relief that reduces the effective cost of borrowing.
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In this lesson
- 0:00 Bank debt and tax relief explained
- 0:12 Calculating after-tax cost of debt
- 0:19 Webster Company worked example
About this lesson
This concept is essential for Financial Management (FM) and Advanced Financial Management (AFM) papers, where you'll use after-tax debt costs in WACC calculations and investment appraisals. The video walks you through the formula with a worked example, showing how a 10% interest rate becomes 7.5% after accounting for a 25% tax rate.
Duration: 1m
Transcript
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