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Question: Here are book- and market-value balance sheets of the United Frypan Company: Book-Value Balance Sheet Net working capital $ 45 Debt $ 65 Long-term assets 55 Equity 35 $ 100 $ 100 Market-Value Balance Sheet Net working capital $ 45 Debt $ 65 Long-term assets 190 Equity 170 $ 235 $ 235 Assume that MM's theory holds except for taxes. There is no growth, and the $65 of debt is expected to be permanent. Assume a 31% corporate tax rate.
a. How much of the firm's market value is accounted for by the debt-generated tax shield? (Round your answer to 2 decimal places.) PV tax shield $
b. What is United Frypan's after-tax WACC if rDebt = 7.5% and rEquity = 15.5%? (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 after a grace period of 5 years. What will be the new value of the firm, other things equal? Assume a discount rate of 7.5%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) New value of the firm $
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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