Here are book- and market-value balance sheets of the United Frypan Company:

Assume that MM's theory holds except for taxes. There is no growth, and the $40 of debt is expected to be permanent. Assume a 35% corporate tax rate.
a. How much of the firm's value is accounted for by the debt-generated tax shield?
b. What is United Frypan's after-tax WACC if rdebt, = 8% and requity = 15%?
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 an 8% borrowing rate.

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Book-Value Balance Sheet Debt $ 40 Net working capitalS20 Db 40 60 $100 80 Equity $ 100 Long-term assets Market-Value Balance Sheet Net working capital Long-term assets 20 Deb 40 Equity 40 120 $ 160 $ 160