12 Question 13 (10 points) Here are book and market value balance sheets of the United Frypan Company: Book value balance sheet Net Working Capital 20 Debt Long-term assets 80 Equity 100 100 888 40 60 Market value balance sheet Net Working Capital 20 Debt 40 Long-term assets 140 Equity 120 160 160 Assume that MM's theory holds with taxes. There is no growth and the $40 of debt is expected to be permanent. Assume a 40% corporate tax rate. How much of the firm's value is accounted for by the debt-generated tax shield if Congress passes a law which eliminates the deductibility of interest for tax purposes after a grace period of 5 years. (Assume an 8% borrowing rate.)