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Avicorp has a $13.6million debt issueoutstanding, with a 6.2%coupon rate. The debt hassemi-annual coupons, the next coupon is due in sixmonths, and the debt matures

Avicorp has a $13.6million debt issueoutstanding, with a 6.2%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.

b. If Avicorp faces a 40% taxrate, what is itsafter-tax cost ofdebt?

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