Avicorp has a $ $10\mathrm{.}1$ Avicorp has a $$10\mathrm{.}1$ million debt issue outstanding, with a $5\mathrm{.}8\%$ 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? Note: Compute the effective annual return.

b$.$ If Avicorp faces a $40\%$ 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.

a$.$ The cost of debt is

$\%$ per year. $($Round to four decimal places.$)$

million debt issue$$ outstanding, with a $5\mathrm{.}8\%$

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? Note: Compute the effective annual return.

b$.$ If Avicorp faces a $40\%$

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.

Question content area bottom

Part $1$

a$.$ The cost of debt is enter your response here

$\%$

per year.$($Round to four decimal$$ places.$)$