Question: Avicorp has a $10 million debt issue outstanding, with a 6% coupon rate. The debt has semi-annual coupons, the next coupon is due in six

Avicorp has a $10 million debt issue outstanding, with a 6% 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 95% of par value.

a. What is Avicorp’s pre-tax cost of debt?

b. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt?

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