Avicorp has a $12.8 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. **Answer MUST be rounded to FOUR decimal places** 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
Avicorp has a $12.8 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. **Answer MUST be rounded to FOUR decimal places** 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
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Avicorp has a $12.8 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. **Answer MUST be rounded to FOUR decimal places**
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
Note: Assume that the firm will always be able to utilize its full interest tax shield.
(Please show work, a plus if shown in Excel with formulas shown!)
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