a. How much of the firms value in dollar terms is accounted for by the debt-generated tax shield? b. How much better off will UF's shareholders be if the firm borrows $130 more and uses it to repurchase stock?

Here are book and market value balance sheets of the United Frypan Company (UF): Book Value Balance Sheet Net working capital $130 $150 Debt Long-term assets 190 170 Equity $320 $320 Market Value Balance Sheet Net working capital $ 130 $150 Debt Long-term assets 250 230 Equity $380 $380 Assume that MM's theory holds with taxes. There is no growth, and the $150 of debt is expected to be permanent. Assume a 40% corporate tax rate