Avicorp has a $11. 2 million debt issue outstanding, with a 5. 9% coupon rate. T

Question

Avicorp has a $11. 2 million debt issue outstanding, with a 5. 9% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 93% of par value. What is Avicorp's pre-tax cost of debt? Note: Compute the effective annual return. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt? The cost of debt is % per year. (Round to four decimal places.) If Avicorp faces a 40% tax rate, the after-tax cost of debt is %. (Round to four decimal places.)

Explanation / Answer

a. 5.987%

b.3.5922%

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