And if so, how? I think that it could if a company may have "over paid" on interest? But then what would the cost of debt be in this scenario?
For example, if a company owes $100 on interest for $1000 worth of debt, and if the company paid $110, would the cost of debt be -10/1000?
Thanks!
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Hahaha, no. What you're calculating is the implied cost of debt, by taking the total interest expense and total expanding debt to get some implied rate.
1. If a firm overpays on interest, the "extra" interest would usually help pay down the principal, but it depends if this si even allowed. Details would be in the debt covenant.
2. The cost of debt for each tranche can never be negative.
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