Michelin is thinking of divesting one of the plants. The plant will generate free cash flows $($FCF$)$ of $$3\mathrm{.}8$ million at the end of the first year $($this is FCF at period $1$ under Gordon growth model$)$ and the cash flows will grow at $3\%.$ The plant is financed with a debt of $100$ million which is expected to remain constant. Michelin has an equity cost of capital of $10\%$ and a debt cost of capital of $6\%$ and a marginal tax rate of $40\%.$ Personal tax rates for marginal equity and debt investors are $10\%$ and $15\%.$ There is a $10\%$ chance that the firm will default in the next period. In case it defaults, the cost of default $($after adjusting for appropriate discount rate$)$ is $10$ million. Further the present value of the net agency cost of the $$100$ million debt is estimated to be $5$ million. If the plant has an average risk similar to the whole firm, value the plant using the APV method. Assume a leverage ratio $($D:V$)$ of $0\mathrm{.}5.$

Michelin is thinking of divesting one of the plants. The plant will generate free cash flows $($FCF$)$ of $$3\mathrm{.}8$ million at the end of the first year $($this is FCF at period $1$ under Gordon growth model$)$ and the cash flows will grow at $3\%.$ The plant is financed with a debt of $100$ million which is expected to remain constant. Michelin has an equity cost of capital of $10\%$ and a debt cost of capital of $6\%$ and a marginal tax rate of $40\%.$ Personal tax rates for marginal equity and debt investors are $10\%$ and $15\%.$ There is a $10\%$ chance that the firm will default in the next period. In case it defaults, the cost of default $($after adjusting for appropriate discount rate$)$ is $10$ million. Further the present value of the net agency cost of the $$100$ million debt is estimated to be $5$ million. If the plant has an average risk similar to the whole firm, value the plant using the APV method. Assume a leverage ratio $($D:V$)$ of $0\mathrm{.}5.$

$102\mathrm{.}5$

$106\mathrm{.}5$

$87\mathrm{.}5$

$110\mathrm{.}5$