Question
In: Finance
Avicorp has a $ 14.6 million debt issue outstanding, with a 5.9 % coupon rate. The...
Avicorp has a $ 14.6 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 five years. It is currently priced at 93 % 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.
Solutions
Expert Solution
AFTER TAX COST OF DEBT IS CALCULATED USING YTM AND NOT EFFECTIVE RATE
jeff jeffy answered 1 year agoRelated Solutions
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