Question
Avicorp has a $ 10.4 millio n debt issueoutstanding, with a 5.8 % coupon rate. The debt hassemi-annual coupons, the next coupon is due in
Avicorp has a $ 10.4 million debt issueoutstanding, with a 5.8 % coupon rate. The debt hassemi-annual coupons, the next coupon is due in sixmonths, and the debt matures in five years. It is currently priced at 95 % of par value.
a. What isAvicorp's pre-tax cost ofdebt? Note: Compute the effective annual return.
b. If Avicorp faces a 40 % taxrate, what is itsafter-tax cost ofdebt?
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International Finance Theory and Policy
Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz
10th edition
978-0133425895, 133425894, 978-0133423631, 133423638, 978-0133423648
