[Verse 1] When companies need to borrow money They pay interest on their debt But there's a secret that's not so funny Tax shields make it better yet The government gives a helping hand With deductions that are planned [Chorus] Cost of debt before tax rate Multiply by one minus tax That's the formula don't be late After-tax cost that's the facts Tax shield saves you money Makes debt financing sunny Before tax times bracket rate After-tax cost calculate [Verse 2] Let's say your company pays ten percent On bonds that you have issued But your tax rate is thirty percent The savings can't be missed Ten percent times seventy percent Seven percent is what you spent [Chorus] Cost of debt before tax rate Multiply by one minus tax That's the formula don't be late After-tax cost that's the facts Tax shield saves you money Makes debt financing sunny Before tax times bracket rate After-tax cost calculate [Bridge] Interest payments are deductible From your taxable income This benefit is predictable When profits surely come The higher your tax bracket The bigger savings packet [Verse 3] Credit ratings affect your cost Better ratings mean lower rates If your rating gets lost Higher interest awaits Market conditions also matter When debt costs start to scatter [Chorus] Cost of debt before tax rate Multiply by one minus tax That's the formula don't be late After-tax cost that's the facts Tax shield saves you money Makes debt financing sunny Before tax times bracket rate After-tax cost calculate [Outro] Remember this equation For your CFA preparation After-tax debt cost calculation Is key for valuation
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