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3.2 Help, please! Market Net working capital $20 $ 40 Debt Long-term assets 140 120 Equity $160 $160 Assume that M&M's theory holds with taxes.

3.2 Help, please! image text in transcribed
Market Net working capital $20 $ 40 Debt Long-term assets 140 120 Equity $160 $160 Assume that M&M'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. (1)How much of the firm's value in dollar terms is accounted for by the debt-generated tax shield? (5 marks) (2) How much better off will UF's shareholders be if the firm borrows $20 more and uses it to repurchase stock

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