Managerial Finance

Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions): Book Value Balance Sheet Net working capital 40 Debt S 30 Long-term assets Equity 70 $ 180 $ 100 Market- Value Balance Sheet Net working capital $ 40 Debt Long-term assets 195 Equity 205 $ 235 $ 235 Assume that MM's theory holds except for taxes. There is no growth, and the $30 of debt is expected to be permanent Assume a 219 corporate tax rate. a. How much of the firm's market value is accounted for by the debt-generated tax shield? (Enter your answer in million rounded to 2 decimal places.) b. What is United Frypan's after-tax WACC if febt - 70% and Equity -16.0%? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) 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 70%. (Do not round Intermediate calculations. Enter your answer In million rounded to 2 decimal places.) 3 PV Lax shield b WACC New value of the firm