Atcimpts Keep the Hoghest 14/15 2. The Cost of Capitali Cost of Debt A firm's belore-tax cont of debt, r4, is the interest rate that the firm must pay on dobe. Because interest is tax deductible, the felevser cose ct sebt used to culculate a firm's WACC is the cost of debt, ri(1). The cont of debt is used ni calculsting the coch fows, it is important to enphaure that the cast of debt is the interest rate on debt, not dets because our primary concen with the cosk of captal is its use in capital budgetang decisions. The rate at which ose firm has borrowed in the past is becouse we need to know the cost of capital. for these reissons, the cost of sebr than the - The on the company's therm debt is generally used to cilculate the cost of deth bectuse, more often than not, the capital is being rased to fund term projects. after-tix cost of debce bo not round intermedate calolations, pound vour answer to two deoms places