Problem 16-21 Taxes and the Cost of Capital (LO2) Here are book-and market value balance sheets of the United Frypan Company (figures in $ millions): Book-Value Balance Sheet Net working capital $ 5@ Debt Long-term assets 50 Equity $ 100 $ 70 30 $ 100 Market Value Balance Sheet Net working capital 5 50 Debt Long-term assets 200 Equity $ 250 $ 70 180 $ 25e Assume that MM's theory holds except for taxes. There is no growth, and the $70 of debt is expected to be permanent Assume a 21% 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.) ong-term assets Equity 180 200 250 $ $ 250 Assume that MM's theory holds except for taxes. There is no growth, and the $70 of debt is expected to be permanent Assume a 21% 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 Debt = 7,4% and fequity = 15.6%? (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 7.4%. (Do not round intermediate calculations. Enter your answer in million rounded to 2 decimal places.) a. b. PV tax shield WACC New value of the firm million % million C