Estimating the cost of common equity capital is more challenging than estimating the cost of debt capital.
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2.1. Taxes and the Cost of Capital 1 − 0.4) = €0.6 million because the interest reduces the company’s tax bill by €0.4 million. In this case, the before-tax cost of debt is 10 percent, whereas the after-tax cost of debt is (€0.6 million)/(€10 million) = 6 percent.
<span>Estimating the cost of common equity capital is more challenging than estimating the cost of debt capital. Debt capital involves a stated legal obligation on the part of the company to pay interest and repay the principal on the borrowing. Equity entails no such obligation. Estimating the co
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