Avicorp has a $20 million debt issue outstanding, with a 8% coupon rate. The debt has annual coupons, and the debt matures in seven years. It is currently priced at 93% of par value. a. What is Avicorp's pre-tax cost of debt? b. If Avicorp faces a 35% 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.

Answer: a. The cost of debt is % per year. (Round to four decimal places.) b. The after-tax cost of debt is %. (Round to four decimal places.)