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Compute What is Avicorp pre-tax cost of debt

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Reference no: EM132965881

Avicorp has a $12.4 million debt issue outstanding, with a 6.1% 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.

Problem a. What is Avicorp's pre-tax cost of debt? Note: Compute the effective annual return.

Problem 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.

Reference no: EM132965881

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