What will be the new value of the firm

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Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions):

Point 1: Book-Value Balance Sheet Net working capital$60 Debt $65 Long-term assets 40 Equity 35 $100 $100

Point 2: Market-Value Balance Sheet Net working capital$60 Debt$65 Long-term assets 155 Equity 150 $215 $215

Point 3: 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 21% corporate tax rate.

Question 1: 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 borrowing rate of 6.2%. (Do not round intermediate calculations. Enter your answer in million rounded to 2 decimal places.)

Reference no: EM132485674

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