Avicorp has a $$$$10\mathrm{.}8$ million debt issue$$ outstanding, with a $5\mathrm{.}9\%$ coupon rate. The debt has$$ semi$-$annual coupons, the next coupon is due in six$$ months, and the debt matures in five years. It is currently priced at $93\mathrm{.}66\%$ of par value.

a$.$ What is Avicorp$\text{'}$s pretax cost of$$ debt?

b$.$ If Avicorp faces a $35\%$ 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.$($Round to two decimal$$ places.$)$