1. Your company is entirely equity financed and has a 12% cost of equity. Suppose the company decides to issue debt with a 5% cost of debt and repurchased equity so that it will be 40% debt financed. If there are no corporate taxes and the new capital structure is expected to be permanent, what will be the new cost of equity?
2. Excess tax credit:
The corporate tax rate in Canada is 30% and the withholding dividend tax rate is 8%. If Home-depot generates $10,000 of taxable income in Canada and wants to repatriate or bring it to the Us, what is the excess tax credit calculation? [hint: use the FTC scheme clauses applicable to this calculation]