Assume that MM$\text{'}$s theory holds with taxes. There is no growth, and the $$240$ of debt is expected to be fixed and permanent. Assume a

$30\%$ corporate tax rate.

a$.$ How much of the firm's 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 $$220$ more and uses it to repurchase stock?

Answer is complete but not entirely correct.Here are book and market value balance sheets of the United Frypan Company $($UF$)$:

Book Value Balance Sheet

Net working capital $ $220$ $ $240$ Debt

Long$-$term assets $280260$ Equity

$ $500$ $ $500$

Market Value Balance Sheet

Net working capital $ $220$ $ $240$ Debt

Long$-$term assets $340320$ Equity

$ $560$ $ $560$

Assume that MM$\text{'}$s theory holds with taxes. There is no growth, and the $$240$ of debt is expected to be fixed and permanent. Assume a $30\%$ corporate tax rate.

How much of the firm$$s value in dollar terms is accounted for by the debt$-$generated tax shield?

How much better off will UF's shareholders be if the firm borrows $$220$ more and uses it to repurchase stock?