What does the term "cost of debt" refer to?

The term "cost of debt" specifically refers to the interest rate paid on borrowed funds. This is an essential measure for businesses and investors as it indicates the cost of financing operations or projects through borrowing rather than using equity. The cost of debt is crucial for financial decision-making because it affects the overall cost of capital, which is the weighted average of the costs of debt and equity. Understanding the cost of debt helps businesses assess their financial leverage, manage cash flows, and evaluate investment opportunities.

In contrast, the other options pertain to different financial concepts. Profit from investments is related to equity returns and not the cost of borrowing. Fees associated with financial advisors are service costs, not specifically related to debt financing. Taxes on corporate income involve the taxation aspect of profits rather than the costs incurred from borrowing. Thus, the correct answer accurately encapsulates the definition of cost of debt in financial terms.