Problem 18-2 Tax shield Here are book and market value balance sheets of the United Frypan Company (UF): Book Value Balance Sheet Net working capital Long-term assets $30 90 $120 $50 70 $120 Market Value Balance Sheet Net working capital Long-term assets $30 150 $180 $50 130 $180 Debt Equity Debt Equity Assume that MM's theory holds with taxes. There is no growth, and the $50 of debt is expected to be permanent. Assume a 40% corporate tax rate. a. How much of the firm's value is accounted for by the debt-generated tax shield? PV tax shield b. How much better off will UF's shareholders be if the firm borrows $30 more and uses it to repurchase stock? Increase in equity value