In the past several years, shakira had loaned money to shakira inc. (an s corporation) to the corporation keep afloat in a downturn. her stock basis in the s corporation is now $0, and she has deducted $49,500 in losses, reducing her debt basis from $110,000 to $60,500. things appear to be turning around this year, and shakira inc. repaid shakira $22,000 of the $110,000 outstanding loan. what is shakira’s income, if any, on the partial loan repayment?

The common stock and debt of northern sludge are valued at $65 million and $35 million, respectively. investors currently require a return of 15.9% on the common stock and a return of 7.8% on the debt. if northern sludge issues an additional $14 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? assume that the change in capital structure does not affect the interest rate on northern’s debt and that there are no taxes.