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What is Avicorp pre-tax cost of debt

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Reference no: EM133049019

Question - Avicorp has a $ 10.3 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.

Required -

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?

Reference no: EM133049019

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