Here are book- and market-value balance sheets of the United Frypan Company:

Book-Value Balance Sheet

Net working capital $ 40 Debt $ 60

Long-term assets 60 Equity 40

$ 100 $ 100

Market-Value Balance Sheet

Net working capital $ 40 Debt $ 60

Long-term assets180 Equity160

$ 220$ 220

Assume that MM's theory holds except for taxes. There is no growth, and the $60 of debt

is expected to be permanent. Assume a 30% corporate tax rate.

a. How much of the firm's market value is accounted for by the debt-generated tax shield? Round to two decimals

PV tax shield =

b. What is United Frypan's after-tax WACC if rDebt = 7.6% and rEquity = 15.4%?

WACC =

c.Now suppose that Congress passes a law that eliminates the deductibility of interest for

tax purposes. What will be the new value of the firm, other things equal? Assume a

borrowing rate of 7.6%. Round to two decimals

New Value of the firm =