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1.Here are book- and market-value balance sheets of the United Frypan Company: Net working capital Long-term assets Book-Value Balance Sheet $ 30 Debt 70 Equity $ 100 Net working capital Long-term assets Market-Value Balance Sheet $ 30 Debt 185 Equity $ 215 $ 50 50 $ 100 $ 50 165 $ 215 Assume that MM's theory holds except for taxes. There is no growth, and the $50 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 Frypan's after-tax WACC if rDebt = 6.8% and rEquity = 16.2%? (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. What will be the new value of the firm, other things equal? Assume a borrowing rate of 50.0%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) New value of the firm = 2.River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $320,000 of debt at an interest rate of 12% and use the proceeds to repurchase 32,000 shares at $10 per share. Profits before interest are expected to be $132,000. a. What is the ratio of price to expected earnings for River Cruises before it borrows the $320,000? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price-earnings ratio = b. What is the ratio after it borrows? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price-earnings ratio = 3. River Cruises is all-equity-financed. Number of shares Price per share Market value of shares $ Current Data 100,000 10 $1,000,000 State of the Economy Slump Normal Boom Profits before interest $ 73,750 122,500 184,000 Suppose it now issues $250,000 of debt at an interest rate of 10% and uses the proceeds to repurchase 25,000 shares. Assume that the firm pays no taxes and that debt finance has no impact on firm value. Refer to the above table to compute the missing data. (Do not round intermediate calculations. Round "Earnings per share" to 3 decimal places. Enter "Return on shares" as a percent rounded to 2 decimal places.) 20170821 Outcomes Number of shares Price per share Market value of shares Market value of debt State of the Economy Slump Profits before interest Normal 73,750 Boom 122,500 184,000 Interest Equity earnings Earnings per share Return on shares % % Expected Outcome %