Cost of debt

Distinguish the coupon paid on nominal debt from the return investors require on its current market value. For irredeemable debt, the before-tax cost is annual interest divided by ex-interest market value; the simple after-tax cost uses annual interest after relief. For redeemable debt, find the rate equating market value to future after-tax interest and redemption payments from the issuer's perspective. Principal repayment is generally not treated as tax-deductible interest. A bank loan priced at par with immediate usable interest relief may use its interest rate multiplied by (1 − T).