Suppose Goodyear Tire and Rubber Company is considering selling one of its manufacturing plants. The plant is expected to generate free cash flows of $1.64 million per year, growing at a rate of 2.4% per year. Goodyear has a cost of equity capital of 8.5%, a cost of debt capital of 6.7%, a marginal corporate tax rate of 32%, and a debt-to-equity ratio of 2.8. If the plant is average risk and Goodyear plans to maintain a constant debt-to-equity ratio, how much after-tax amount must the plant receive to make the sale profitable?

A sale would be profitable if Goodyear received more than

2-

Assume that Alcatel-Lucent has a cost of equity capital of 9.4% of market capitalization of $11.52 billion and an enterprise value of

$16 billion with a cost of debt capital of 6.2% and its marginal tax rate is 37%

to. What is the Alcatel-Lucent WACC?

b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the following expected free cash flows?

Year	0	1	2	3
FCF ($ million)	negative 100	51	102	72

C. If Alcatel-Lucent maintains its debt-to-equity ratio, what is the borrowing capacity of the project in part ( b )?