Avicorp has a

$11.1 million debt issue outstanding, with a

5.8% 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

95% 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

____________% 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.)