Avicorp has a $15.5 million debt issue outstanding, with a 6.3% 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 92% of par value. a. what is avicorp's pre-tax cost of debt? note: compute the effective annual return. (another note: the pre-tax cost of debt is the yield to maturity (ytm) on the outstanding debt issue. we solve for the 6-month ytm on the bond: (this is what i have so not sure how they got $920 here: ) ** $920 = (31.50/(1+ytm)) + (31.50/(1+ytm)^2)) + (31.50/(1+ytm)^9)) + (31.50 + 1,000)/(1+ytm)^10) therefore, ytm = 4.1434% then compute the effective annual return (ear) as: ear = (1 + 0.041434)^2 -1 = 0.084585 the pre-tax cost of debt is 4.1434% every 6 months, or 8.4585% per year. b. if avicorp faces a 40% tax rate, what is its after-tax cost of debt? after-tax cost of debt = ear x (1-tc) where tc is avicorp's tax rate. then, after- tax cost of debt = 0.084585 x (1-0.4) = 0.050751 if avicorps faces a 40% tax rate, the after-tax cost of debt is 5.0751%.