Part $1$

Avicorp has a $ $14\mathrm{.}6$ million debt issue$$ outstanding, with a $6\mathrm{.}1\%$ coupon rate. The debt has$$ semi$-$annual coupons, the next coupon is due in six$$ months, and the debt matures in five years. It is currently priced at $96\%$ 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.