Question: PLEASE TELL ME HOW TO GET TO ANSWER A, I GOT THE CORRECT ANSWER BUT HAS NO CLUE HOW TO SOLVE IT Avicorp has a

PLEASE TELL ME HOW TO GET TO ANSWER A, I GOT THE CORRECT ANSWER BUT HAS NO CLUE HOW TO SOLVE IT

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. 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 7.7542% per year. (Round to four decimal places.) b. If Avicorp faces a 40% tax rate, the after-tax cost of debt is 4.6525 %. (Round to four decimal places.)

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