How to campare the effective cost of debt And what is the co

Solution

Effective cost of debt refers to the cost of debt after considering the tax savings on the debt payments. It is calculated by taking the cost of debt net of tax rate. it is also referred to as the after tax cost of debt.

Cost of debt is the precentage cost that the company incurrs to use the debts borrowed from the debt holders. It is calculated as the percentage of debt payments with respect to the current market value of debts.