Estimating Cost Of Debt

This question practices a core valuation concept, estimating the return lenders require on a company’s borrowing. In interviews, candidates are expected to know how to think about borrowing costs using market evidence, credit risk, and the relationship between a company’s leverage and its perceived credit quality. It also tests whether you understand how to handle situations where a firm has no traded debt, which is common in private company valuation and real world modeling. Interviewers ask this because cost of debt feeds directly into WACC and enterprise valuation, so a clear framework matters.