1.Here are book- and market-value balance sheets of the United Frypan Company:

Book-Value Balance Sheet

Net working capital$50Debt$70

Long-term assets 50Equity30

$100 $100

Market-Value Balance Sheet

Net working capital$50Debt$70

Long-term assets 200Equity180

$250 $250

Assume that MM's theory holds except for taxes. There is no growth, and the $70 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 ifr_Debt= 7.4% andr_Equity= 15.6%?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

WACC ----%

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 7.4%.(Do not round intermediate calculations. Round your answer to 2 decimal places.)

New value of the firm ---------