Here are book- and market-value balance sheets of the United Frypan Company: Book-value Balance Sheet Net working capital $ 30 Debt $ 80 Longterm...
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Here are book- and market-value balance sheets of the United Frypan Company: Book-value Balance Sheet Net working capital $ 30 Debt $ 80
Long—term assets '70 Equity 20 $ 100 $ 100 Market—Value Balance Sheet Net working capital $ 30 Debt $ 80
Long—term assets 170 Equity 120 $ 200 $ 200 Assume that MM’s theory holds except for taxes. There is no growth, and the $80 of debt ‘Is expected to be permanent. Assume a 32%
corporate tax rate.

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Assume that MM’s theory holds except for taxes. There is no growth, and the $80 of debt is expected to be permanent. Assume a 32%
corporate tax rate. a. How much of the firm's market value is accounted for by the debt-generated tax shield? PV tax shield b. What is United Frypan’s after—tax WACC if rue},t = 6.5% and rEquity = 16.5%? (Do not round intermediate calculations. Enter your
answer as a percent rounded to 2 decimal places.) __I c. Now suppose that Congress passes a law that eliminates the deductibility of interest for tax purposes after a grace period of 5
years. What will be the new value of the firm, other things equal? Assume a borrowing rate of 6.5%. (Do not round intermediate
calculations. Round your answer to 2 decimal places.) New value of the firm I I

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