JRossSter

MFIN: Your answers are 100% correct. No doubts.

Both of us are saying the same thing but with different perception.

And I am not arguing with you. I am a member of this forum to help others and to learn from others. (TEAM: Together Everyone Achieves More) so chill bro.

I just said the same concept in a different style as the original poster had asked why the cost of debt is $600K and not $1M.

I am trying to clarify to OP that even though the interest paid is $1M, its value of cost of debt on income tax is $600K (which is what you said "hence the firm effectively only pays the after-tax amount of interest.") after 40% savings on tax.