After tax cost of debt

The after tax cost of debt is the interest a company paid minus the tax refund generated by deducting the interest on the company tax return.

Let’s say a company in the 33% tax bracket paid $18,000 of interest on a bank loan. The $18,000 is a tax deduction so the IRS would send the company a refund of $6000 (18,000 x .333). The $18,000 they paid minus the $6000 they received would be the true cost of the debt, $12,000. This is the after tax cost of debt.

https://accounting.uworld.com/cpa-review/lc/accounting-dictionary/term/after-tax-cost-of-debt/