Cost of Long-Term Debt

The cost of long-term debt is the current yield prevailing in the market on newly issued par value bonds of equal risk to that already outstanding. The cost of long?term debt is computed on an after-tax basis as the product of the yield times (1 � the company's marginal tax rate). The after-tax cost of debt is used to compute the weighted average cost of capital. See also weighted average cost of capital and cost of preferred stock and cost of retained earnings.