Cost of Debt (WACC) & Corporate Loan Comparison Calculator Pro
Determine your effective after-tax cost of debt under Section 36(1)(iii) interest tax deductibility, compute overall Weighted Average Cost of Capital (WACC), compare financing vehicles (Term Loans vs CC/OD vs Debentures), and export a Boardroom Corporate Debt Strategy Statement.
payments 1. Debt Facility & Tax Deductibility
pie_chart 2. Capital Structure & Cost of Equity (Ke)
domain 3. Corporate Borrower Information
info The Mathematics of Corporate Debt Tax Shields & WACC
In corporate financial engineering, debt is intrinsically cheaper than equity because interest payments are a deductible business expenditure under Section 36(1)(iii) of the Income Tax Act, 1961:
- Effective Cost of Debt Formula: \(K_d = i \times (1 – t) / (1 – f)\), where \(i\) is pre-tax borrowing rate, \(t\) is corporate tax rate, and \(f\) is processing/flotation cost amortized.
- The Tax Shield: For every ₹1 Crore of interest incurred at a 25.17% corporate tax rate, the enterprise saves ₹25.17 Lakhs in income tax liability.
- WACC Hurdle Rate: Weighted Average Cost of Capital represents the minimum hurdle rate an organization must generate on new Capex projects to preserve shareholder value: \(WACC = W_e K_e + W_d K_d\).
COST OF DEBT (WACC) STRATEGY STATEMENT
Corporate Capital Structure, Post-Tax Borrowing Costs & Tax Shield Analysis
Capital Structure & Weighted Cost Breakdown (figures in Indian Rupees ₹)
| Capital Component | Amount (₹) | Capital Weight (W) | Pre-Tax Cost | Post-Tax Cost (K) | Weighted Cost (W × K) |
|---|
Comparative Debt Instrument Appraisal (annualized interest & tax shield impact)
| Financing Option | Indicative Rate | Gross Annual Interest | Sec 36(1)(iii) Tax Shield | Net Annual Cash Cost | 5-Yr Total Shield |
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Interest expenses incurred wholly and exclusively for business operations are eligible for deduction under Section 36(1)(iii) subject to thin capitalization limits under Section 94B (EBITDA interest cover > 30%). Based on the proposed capital gearing of 33.3% Debt / 66.7% Equity, the blended enterprise hurdle rate stands at 12.10%.