6. Consider the book and market values of a firm: Book value: Working capital 20 Debt Fixed assets 60 80 100 Equity Total Total 100 Market value: 20 Debt 40 Working capital Fixed assets 140 120 Equity Total Total 160 160 Assume a Modigliani-Miller world with taxes and a corporate tax rate of 35%. There is no growth of the EBIT and the 40 Euros of debt are perpetual. a) What is the market value of the tax savings? What is the percentage of T.S over market value? b) Suppose a new law is approved that eliminates the tax benefits of debt after a period of five years. What is the new firm value? (debt pays interests at 8%)