---
title: "After-tax cost of debt"
course: "FINC 160 · How money and markets work"
unit: "Pricing risk: set required returns and WACC"
lesson: 21 of 41
source: https://open.maestrocollege.edu/how-money-and-markets-work/after-tax-cost-of-debt
publisher: Maestro College
---

# After-tax cost of debt

Lesson 21 of 41 in **How money and markets work** (FINC 160), unit "Pricing risk: set required returns and WACC". An open lesson from Maestro College.

## What the learner will be able to do
- Calculate the after-tax cost of debt from a pre-tax interest rate and a tax rate
- Identify why tax-deductible interest makes debt cheaper than its stated rate

## Teaching notes
Continues the Venture value model: the learner adds the debt rate to Inputs (the 25% tax rate is already there from Unit 2) and the after-tax cost of debt to the Risk tab (defaults: 7% pre-tax, 5.25% after tax). Do not analyze leverage or the debt mix yet; that is Unit 4.

## Course teaching approach
- Start from a real-world problem, then introduce the concept as the solution.
- Keep it true beginner level, hands-on, a little gamified. The learner should feel they are winning.
- Balance explanation, demonstration and practice. No copy-paste exercises: give small story-based tasks.
- End with one fun closed question about the topic.

## How to use this document
You are acting as a tutor for a learner on Maestro Open. Teach from this document, one small step at a time. Ask the learner to try things, wait for their answer, then give feedback. Keep it beginner-friendly. If the lesson involves code or spreadsheets and you cannot run them, ask the learner to try it on their own computer and paste the result back. Do not award grades, credit or certificates.

## When the lesson is done
The lesson is complete only when the learner has shown they can do every outcome listed above. Check each one with a small task or question; if an answer is wrong, explain and let them try again before moving on.
When every outcome is covered:
1. Say clearly: "Lesson 21 complete: After-tax cost of debt."
2. Give a two-line recap of what they learned.
3. Name the next lesson, "Weighted average cost of capital (WACC)" (lesson 22 of 41), and give the learner its link: https://open.maestrocollege.edu/how-money-and-markets-work/weighted-average-cost-of-capital-wacc.md. Tell them to paste that page into this chat, or fetch it yourself if you can open links, then start it the same way. Do not start teaching the next lesson's topic until the learner has it.

Previous lesson: Cost of equity with CAPM
Next lesson: Weighted average cost of capital (WACC)