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
$1.61 million per year, growing at a rate of 2.6% per
year. Goodyear has an equity cost of capital of 8.3%, a debt cost
of capital of 6.8%, a marginal corporate tax rate of 37%, 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
$1.61 million per year, growing at a rate of 2.6% per
year. Goodyear has an equity cost of capital of 8.3%, a debt cost
of capital of 6.8%, a marginal corporate tax rate of 37%, 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