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Assume that MM's theory holds except for taxes. There is no growth, and the $65 of debt is expected to be permanent. Assume a 21%
Assume that MM's theory holds except for taxes. There is no growth, and the $65 of debt is expected to be permanent. Assume a 21% corporate tax rate. a. How much of the firm's value is accounted for by the debt-generated tax shield? Note: Enter your answer in million rounded to 2 decimal places. b. What is United Frypan's after-tax WACC if rDebt=7.5% and rEquity=15.5% ? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. 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 an 7.5% borrowing rate. Note: Do not round intermediate calculations. Enter your answer in million rounded to 2 decimal places
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