Avicorp has a $14.3 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 95% of par value

Question

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?
For some reason I cannot begin to figure out the YTM? Please Help, Thank You!

Answer 1

Avicorp has a $10 million debt issue outstanding, with a 6% coupon rate. The debt has semi-annual coupons, the next coupon is due in 6 months, and the debt matures on 5 years. It is currently prices at 95% of its $1,000 face value. What is Avicorp’s cost of debt?

Answer 2

6.33%

Answer 3

3.60