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Assume that MM’s theory holds except for taxes There is no growth and the $80 of debt is expected to be

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Here are book – and market-value balance sheets of the United Frypan
Company:quot;
\Book – Value Balance Sheet
Net working capital
BB
$
Debt
80
Long- term assets
70
Equity
20
180
$
108
\Market – Value Balance Sheet
88
Net working capital
$
BB
Debt*
Long – term assets
170
\Equity
120
2 0 0
\2 80
$
Assume that MM’s theory holds except for taxes. There is no growth , and
the $80 of debt is expected to be permanent . Assume a 32% corporate tay
rate .
a . How much of the firm’s market value is accounted for by the debt –
generated tax shield ?quot;
PV tax shield
lt; Prey
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Assume that MM’s theory holds except for taxes There is no growth and the $80 of debt is expected to be