Need help with Number 3 A, B and C. The whole question is listed in two pictures

Question

Need help with Number 3 A, B and C. The whole question is listed in two pictures.

Chapter 16 Saved Help Save & Exit Submit Check my work 3 b. What is United Frypan's after-tax WACC if rDebt-6.1% and rEquity-16.9%? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) 3.5 points WACC Book C. Now suppose that Congress passes a law that eliminates the deductibility of interest for tax purposes. What will be the new value of the firm, other things equal? Assume a borrowing rate of 6.1%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Print References New value of the firm Reference links 162 Debt and the Cost of Equity Prev 3 of 4 Next> Hill

Explanation / Answer

a) PV tax shield = Debt x Tax Rate = 60 x 36% = $21.6

b) WACC = wd x kd x (1 - tax) + we x ke

here, wd - market weight of debt = 60 / 220 = 27%, we - weight of equity = 1 - 27% = 73%, kd = 6.1%, ke = 16.9%

=> WACC = 27% x 6.1% x (1 - 36%) + 73% x 16.9% = 13.36%

c) Without taxes, PV tax shield = 0

Value of firm = Total Market Value = $220

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