Question
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.66
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.66 million per year, growing at a rate of 2.5% per year. Goodyear has an equity cost of capital of 8.7%, a debt cost of capital of 6.7%, a marginal corporate tax rate of 38%, 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.(Round to one decimal place.)
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