HKC is a manufacturing company that has been financed with 20% debt in the form of a bank loan. The loan has a principal of $500,000, interest rate of 4.8% p.a compounding annually with 15 years. Interest is paid by the end of the year.

The company is considering applying for a new bank loan to finance a new project. The loan has a principal of $150,000; 4.5% p.a with 10 years and interest is paid annually.

HKC's before-taxed WACC (cost of asset) is currently 12% and company's tax rate is 30%

1. Calculate HKC's costs of equity BEFORE and AFTER the new debt issuance

2. Calculate the present value of interest tax shield (ITS) from the borrowing given the tax rate is 30% BEFORE and AFTER. Please note to discount the ITS by the cost of debt.