Avicorp has a $14.5 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 93% of par value.
a. What is Avicorp's pre-tax cost of debt? Note: Compute the effective annual return. (round to 4 decimal places)
b. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt? ( round to 4 decimal places)