What is Avicorps pre-tax cost of debt

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Reference no: EM133578581

Avicorp has a $12.1 million debt issue outstanding, with a 5.9% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months. and the debt matures in ?ve years. It is currently priced at 93% of par value.

1. What is Avicorp's pre-tax cost of debt?

Note: Compute the effecttve annual return.

2. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt?

Note: Assume that the ?rm will always be able to utilize its full interest tax shield.

Reference no: EM133578581

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