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Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufactur-ing plants. The plant is expected to generate free cash flows of $1.5
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufactur-ing plants. The plant is expected to generate free cash flows of $1.5 million per year, growing at a rate of 2.5% per year. Goodyear has an equity cost of capital of 8.5%, a debt cost of capital of 7%, a marginal corporate tax rate of 35%, and a debt-value ratio of 40%. 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
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