Effective borrowing cost after tax.

Cost of debt is the effective interest rate a business pays on its borrowings, adjusted for the tax deductibility of interest. Divide annual interest expense by total debt for pre-tax cost. Multiply by (1 - tax rate) for after-tax cost. The after-tax number is what matters for WACC and capital allocation decisions because interest is tax-deductible in most jurisdictions.

210k annual interest on 3M debt = 7% pre-tax cost. At 21% corporate tax rate, the tax shield saves 44,100 per year. After-tax cost of debt is 7% × (1 - 21%) = 5.53%. That's the real cost the business carries on its borrowings after accounting for tax deductibility.

This tax shield is why moderate debt lowers the cost of capital. A business with 30% debt at 5.5% after-tax cost and 70% equity at 12% cost of equity has WACC of 10.05%. All-equity, the WACC equals 12%. Debt, used moderately, measurably lowers the hurdle rate for new investments.

A worked example

Try the defaults: annual interest expense of 210,000, total debt of 3,000,000, tax rate of 21%. The tool returns 5.53%. You can adjust any input and the result updates as you type — no submit button, no reload. That's the real power here: seeing how sensitive the output is to one or two assumptions.

What moves the number most

The result responds to Annual Interest Expense, Total Debt, and Tax Rate %. Frequency and unit price pull the total in different directions. The biggest surprise for most people is how small recurring amounts compound into large annual figures — that's where this calculation earns its keep.

The formula behind this

Pre-tax cost = interest ÷ debt × 100. After-tax cost = pre-tax × (1 - tax rate). Everything the calculator does is shown in the formula box below, so you can check the math against your own spreadsheet if you want.

What to do with a low result

A disappointing result is information, not a judgement. Pick the single input that dragged the figure down most and focus the next quarter on that one factor. Breadth-first improvement rarely works; depth-first on the worst input usually does.

What this doesn't capture

The score is a composite of the inputs you provide. Life context — job security, family obligations, health, housing — doesn't appear in the math but shapes the real picture. Use the number as a prompt, not a verdict.