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 $1.69
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.69 million per year, growing at a rate of 2.6% per year. Goodyear has an equity cost of capital of 8.5%, a debt cost of capital of 6.8%, a marginal corporate tax rate of 33%, and a debt-equity ratio of 2.3.
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?
Question to be answered: A divestiture would be profitable if Goodyear received more than _______ million after tax. (Round to one decimal place.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started