Avicorp has $a$ $ $10\mathrm{.}1$$$10\mathrm{.}1$ million debt issue outstanding, with $a5\mathrm{.}9\%5\mathrm{.}9\%$ coupon rate. The debt has semi$-$annual coupons, the next coupon $is$ due $in$ six months, and the debt matures $in$ five years. $Itis$ currently priced $at93\%93\%of$ par value.

$a.$ What $is$ Avicorp's pre$-$tax cost $of$ debt? Note: Compute the effective annual return.

$b.If$ Avicorp faces $a40\%40\%$ tax rate, what $is$ its after$-$tax cost $of$ debt?

Note: Assume that the firm will always $be$ able $to$ utilize its full interest tax shield.

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Part $1$

$a.$ The cost $of$ debt $is$ enter your response here $\%$ per year. $(Roundto$ four decimal places.$)$