quiz 9

q. 2 Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of

$1.51 million per year, growing at a rate of 2.5% per year. Goodyear has an equity cost of capital of 8.6%, a debt cost of capital of 6.8%,

a marginal corporate tax rate of 33%, and a debt-equity ratio of 2.5.

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 $__________million after tax