Question

Avicorp has a $ 11.1 million debt issue​ outstanding, with a 5.8 % 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. a. The cost of debt is nothing​% per year.  ​(Round to four decimal​ places.)

Answer 1