6. Consider the book and market values of a firm: Book value: Working capital 20 Debt...

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6. Consider the book and market values of a firm: Book value: Working capital 20 Debt Fixed assets 60 80 100 Equity Total Tot

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Answer 1

Answer #1

a) Market Value of Tax saving

Debt =$40

Interest Rate=8%

Interest Payable=$40*8% = $3.2

Tax Saving on Interest=$3.2 *0.35 =$1.12

Market Value= Working Capital + Fixed Assets- Debt at Market Value

=20+140-40=$120

% of Tax Saving over Market Value=1.12/120*100=0.93333

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Answer 2

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