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PLEASE ANSWER PART A AND PART B. Avicorp has a $10.1 million debt issue outstanding, with a 5.8% coupon rate. The debt has semi-annual coupons,
PLEASE ANSWER PART A AND PART B.
Avicorp has a $10.1 million debt issue outstanding, with a 5.8% 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 94% 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 shieldStep by Step Solution
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