Avicorp has a $11.1 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?
b. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt?