A firm's before-tax cost of debt, rd, is the interest rate that the firm must pay on new debt.
The cost of debt is what the company pays to borrow money. It displays the present interest rate situation and the degree of default risk as seen by investors. The business is able to deduct interest from taxes. Bondholders receive payment in bankruptcy proceedings before shareholders as the company's assets are liquidated. The company's credit rating can be used to calculate default risk.
By contrasting the debt-to-equity ratios, interest coverage ratios, and operating margins of nonrated firms with those of comparable rated firms, the analyst can estimate the pretax cost of debt for a certain firm. As an alternative, the analyst might utilise the company's real interest expense expressed as a percentage of all outstanding debt.
Learn more about Debt here https://brainly.com/question/27333284
#SPJ4
