Question
Avicorp has a $10.1 million debt issue outstanding, with a 6.2% coupon rate. The debt has semi-annual coupons, the next coupon is due in 6
Avicorp has a $10.1 million debt issue outstanding, with a 6.2% coupon rate. The debt has semi-annual coupons, the next coupon is due in 6 moths, and the debt matures in 5 years. It is currently priced at 93% par value.
A. Whats 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.
ANSWER:
A. The cost of debt is ____% per year. (Round to four decimal places)
B. If Avicorp faces a 40% tax rate, the after-tax cost of debt is ___% (Round to four decimal places)
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