Avicorp has a $11.1million 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 93%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% taxrate, what is itsafter-tax cost ofdebt?