Cost of debt
The rate at which the company could borrow today — not the average rate on loans it already has.
Formula
t is the profit tax rate as a fraction of one. Interest reduces the taxable base, so debt costs the company less than its headline rate.
How to read the number
Valuation uses the current market cost of borrowing: an old cheap loan will have to be refinanced at a new rate one day.
When the metric lies
Also known as: after-tax cost of debt