Cost of Debt

What the company would pay to borrow today, not what it is paying on debt raised years ago. Best read as the yield to maturity on its traded bonds; failing that, the risk-free rate plus a spread for its credit rating; failing that, a synthetic rating built from interest coverage. Enters the WACC after tax, because interest is deductible.

Practise it

Build a discount rate from its parts. Adjusted beta through unlever and relever, live equity risk premiums, three routes to a cost of debt.

Open WACC Builder, free, 12 min

Where Cost of Debt comes up

How to Build a DCF Model: Build Order, Terminal Value and the Sanity ChecksA DCF is 70% terminal value and 100% assumptions. Build it so both can be defended.Read the guide — 12 min DCF Interview Questions: The Ones That Actually Come UpFrom "walk me through a DCF" to the follow-ups that catch people who only memorised the steps.Read the guide — 8 min Stocks and Bonds, and Why the Difference Decides EverythingOne makes you an owner and one makes you a lender. Every other difference is a consequence of that.Read the guide — 9 min

Keep reading

DCF interview questions guide

Related Valuation terms

Cost of Equity Equity Risk Premium WACC Country Risk Premium Size Premium Adjusted Beta

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