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Avicorp has a $12.3 million debt issue​ outstanding, with a 6.2% coupon rate. The debt has​...

Avicorp has a $12.3 million debt issue​ outstanding, with a 6.2% 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 95% 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.

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jeff jeffy answered 2 years ago
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