Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected
Posted: Sun Apr 10, 2022 8:45 am
Suppose Goodyear Tire and Rubber Company is considering
divesting one of its manufacturing plants. The plant is expected to
generate free cash flows of $1.62 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 6.8%, a marginal corporate tax
rate of 33%, and a debt-equity ratio of 2.7. 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.
divesting one of its manufacturing plants. The plant is expected to
generate free cash flows of $1.62 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 6.8%, a marginal corporate tax
rate of 33%, and a debt-equity ratio of 2.7. 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.