Cost of Debt
Description
Similar to the cost of equity capital, lenders require a certain return on money they loan to the firm. In a nutshell, a company’s cost of debt capital is simply the interest rate it has to pay lenders to borrow. Typically, this is based on the percentage yield on bonds already issued by the company. This makes sense, as it is reasonable to assume they are able to borrow additional money at this same rate.
