Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Avicorp has a $14.3 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 94% 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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a. The cost of debt is% per year. (Round to four decimal places.)
b. If Avicorp faces
S
a 40% tax rate, the after-tax cost of debt is %. (Round to four decimal places.)
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