Valuation with Taxes: WACC Approach In contrast to a world with no taxes, in Table 3 we now consider the more realistic case where the firm pays taxes, and interest payments are tax deductible. Assume that the tax rate, as in the first calculations, is equal to 30%. RF rate= 6% and Market risk premium is 5.5%

Valuation with Taxes: WACC Approach In contrast to a world with no taxes, in Table 3 we now consider the more realistic case where the firm pays taxes, and interest payments are tax deductible. Assume that the tax rate, as in the first calculations, is equal to 30%. Table 3. Tax rate equals 30%. EBIT No Debt 104,000 31,200 72,800 Debt = $380,000 104,000 31,200 72,800 Tax NOPAT Change in net PPE Change in NWC Free cash flow 72,800 72,800 0.80 0.00 0.80 0.46683 Unleveraged beta Proportion of debt Debt to equity Leveraged beta Cost of equity (use CAPM) 0.00 0.80 WACC Enterprise value Difference in enterprise values Calculate ratio of debt to enterprise value The results above regarding the enterprise values are quite different from those in a world with no taxes. Provide an intuitive explanation for the results