Avicorp has a $10 million debt issue outstanding, with a 6% 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 95% of par value.

a.What is Avicorps pretax cost of debt?

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