Cost of Debt

The rate a company expends on servicing its debt (interest payments etc) expressed as a percentage. It can either be pre-tax or after-tax. Pre-tax is calculated by dividing interest payments by the amount of debt outstanding. After-tax is calculated by dividing interest payments times (1-tax rate) by the amount of debt outstanding.

A hidden cost of debt would be the various covenants that would come with a bank loan or bond issuance. This is why companies would issue stocks—equities carry less strings.