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Avicorp has a $ 11.1 million debt issue outstanding, with a 6.1 % coupon rate. The debt has semi-annual coupons, the next coupon is due

Avicorp has a

$ 11.1

million debt issue outstanding, with a

6.1 %

coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at

96 %

of par value.

a. What 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.

a. The cost of debt is

nothing

%

per year.(Round to four decimal places.)

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