Cost of debt

The cost of debt for a firm is the rate of return required by a company's debt holders.

Expanded Definition

The cost of debt is simply the current yield on a company's debt. For any given piece of outstanding debt: <math>Cost\ of\ Debt=Annual\ Interest\ Payment / Market\ Value\ of\ Debt</math>

Alternatively, it can be calculated by taking the interest expense from the income statement and dividing it by the market value of all outstanding debt.

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Related Terms

• Weighted average cost of capital
• Cost of equity

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