6.

please help me I don't know how to solve this. show the steps if u can

the example problem is below

ustando eView Example 1 View an Example X iced at 93% of par value. ot? Note: Compute t is its after-tax co be able to utilize it EQuestion Help Round to four dec Av corp has a $13 2 million debt issue outstanding, with a 62% coupon rate. The debt has semiannual 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 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. What is Avicorp's cost of debt? Note: Compute the effective annual return. The cost of debt is the yield-to-maturity (YTM) on the outstanding debt issue. We solve for the 6-month YTM on the bond: $31.00 $31.00 $31.00 S31.00 $1,000 $930 Therefore YTM: 3.9614% Then, compute the effective annual return (EAR) as EAR: (1 + 0.039614)2-1 :0 080797 8079796 The cost of debt is 3.9614% every 6 months, or 80797% per year. b. If Avcorp faces a 40% tax rate, what is its after-tax cost of debt? The after-tax cost of debt is computed as: Question is complete Close All parts e outstanding, with debt? Note: Compute hat is its after-tax co s be able to utilize i View an Example X iced at 93% Question Help Round to four dec Ancorp has a $13.2 million debt issue outstanding, with a 6.2% coupon rate The debt has seman ual coupons, the next co in six months, and the debt matures in five years. It is currently priced at 93% of par value. a. What is Avicorp's cost of debt? Note: Compute the effective annual return. b.fAvicorp 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. Tmereiore, ns de YTM 3.9614% Then, compute the effective annual return (EAR) as: EAR : (1 + 0.0396 14)2-1-0. 080797-8 0797% The cost of debt is 3.9614% every 6 months, or 8.0797% per year. b. If Ancorp faces a 40% tax rate, what is its after-tax cost of debt? The after-tax cost of debt is computed as: After-tax Cost of Debt -EARx (1-Tc) where Tc is Avicorp's tax rate. Then, After-tax Cost of Debt : 0.080797 x (1-0 4-0048478-4 8478% If Avcorp faces a 40% tax rate the after-tax cost of debt is 4 847896 Question is complete 2 Close