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

Book-Value Balance Sheet
Net working capital	$	20	Debt	$	40
Long-term assets		80	Equity		60
	$	100		$	100

Market-Value Balance Sheet
Net working capital	$	20	Debt	$	40
Long-term assets		140	Equity		120
	$	160		$	160

Assume that MMs theory holds except for taxes. There is no growth, and the $40 of debt is expected to be permanent. Assume a 35% corporate tax rate.

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

PV tax shield

$

b.	What is United Frypans after-tax WACC if rDebt = 8% and rEquity = 15%? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

WACC

%

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 a borrowing rate of 8%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

New value of the firm

$