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

$220   $220                                                                          $280   $280

Assume that MM's theory holds with taxes. There is no growth, and the $100 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

PV Tax shield $

B) How much better off will UF's shareholders be if the firm borrows $80 more and uses it to repurchase stock?

Increase in equity $