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Oakleigh Ltd. is contemplating selling off one of its product lines. This product line is projected to yield a free after-tax cash flow of $2.5
Oakleigh Ltd. is contemplating selling off one of its product lines. This product line is projected to yield a free after-tax cash flow of $2.5 million annually starting a year from now, with a decrease of 3% per year thereafter. With a cost of equity at 13%, an after-tax cost of debt at 6%, a corporate tax rate of 30%, and a debt-equity ratio of 1.5, the firm intends to uphold a steady debt-equity ratio and assumes the product line carries average risk. To ensure the divestiture is financially advantageous, the after-tax amount the firm should receive would be closest to:
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