Market-Value Balance Sheet

Net working capital . $45 Debt$ 45

Long-term assets 200 Equity200

total $ 245 $245

Assume that MM's theory holds except for taxes. There is no growth, and the $45 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?

b.What is United Frypan's after-tax WACC ifr_Debt= 7.1% andr_Equity= 15.9%?(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. What will be the new value of the firm, other things equal? Assume a borrowing rate of 7.1%.(Do not round intermediate calculations. Round your answer to 2 decimal places.)