Why do we compare the after-tax cost of debt to the earnings yield when determining if externally financed buybacks are accretive to EPS?
Think like this, conceptually;
An externally financed buyback is same as borrowing money at the after tax cost of debt(kd*1-t), and then using it to buy own stocks at price paid. So you should compare the cost of investment(after tax cost of debt), with the yiled of investment(earning yiled=eps/p). If yiled is higher than cost, then it means a company make a successful investment, so EPS could become higher.