Avicorp has a$ 10.5million debt issueoutstanding, with a 5.9 % 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 93 % of par value.

a.What isAvicorp's pre-tax cost ofdebt? Note: Compute the effective annual return. (round to 4 decimal places)

b.If Avicorp faces a 40 %taxrate, what is itsafter-tax cost ofdebt? (round to 4 decimal places)