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I am stuck at the beginning. I don't understand how they are getting YTM. Avicorp has a $14.3 million debt issueoutstanding, with a 5.8% coupon
I am stuck at the beginning. I don't understand how they are getting YTM.
Avicorp has a $14.3 million debt issueoutstanding, with a 5.8% coupon rate. The debt has semi-annual coupons, the next coupon is due in sixmonths, and the debt matures in five years. It is currently priced at 94 % 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?
Note: Assume that the firm will always be able to utilize its full interest tax shield.
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