1- Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.64 million per year, growing at a rate of 2.4% per year. Goodyear has an equity cost of capital of 8.5%, a debt cost of capital of 6.7%, a marginal corporate tax rate of 32%, and a debt-equity ratio of 2.8. If the plant has average risk and Goodyear plans to maintain a constant debt-equity ratio, what after-tax amount must it receive for the plant for the divestiture to be profitable?

A divestiture would be profitable if Goodyear received more than

2-

Suppose Alcatel-Lucent has an equity cost of capital of 9.4 % market capitalization of $ 11.52 billion, and an enterprise value of

$ 16.0 billion with a debt cost of capital of 6.2 % and its marginal tax rate is 37 %

a. What is Alcatel-Lucent's WACC?

b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the following expected free cash flows?

Year	0	1	2	3
FCF ($ million)	negative 100	51	102	72

c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)?