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Here are book and market value balance sheets of the United Frypan Company (UF): Assume that MM's theory holds with taxes. There is no growth,
Here are book and market value balance sheets of the United Frypan Company (UF): Assume that MM's theory holds with taxes. There is no growth, and the $230 of debt is expected to be fixed and permanent. Assume a 40% 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 $210 more and uses it to repurchase stock
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