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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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