Question
Here are book and market value balance sheets of the United Frypan Company (UF): Book Value Balance Sheet Net working capital $ 140 $ 160
Here are book and market value balance sheets of the United Frypan Company (UF):
| Book Value Balance Sheet | ||||||||
| Net working capital | $ | 140 | $ | 160 | Debt | |||
| Long-term assets | 200 | 180 | Equity | |||||
| $ | 340 | $ | 340 | |||||
| Market Value Balance Sheet | ||||||||
| Net working capital | $ | 140 | $ | 160 | Debt | |||
| Long-term assets | 260 | 240 | Equity | |||||
| $ | 400 | $ | 400 | |||||
Assume that MM's theory holds with taxes. There is no growth, and the $160 of debt is expected to be permanent. Assume a 30% corporate tax rate. a. How much of the firms value in dollar terms is accounted for by the debt-generated tax shield?
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Behavioral Finance And Capital Markets
Authors: A. Szyszka
5th Edition
1137338741, 9781137338747
