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Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows...


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Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.55 million peryear, growing at a rate of 2.4% per year. Goodyear has an equity cost of capital of 8.5%, a debt cost of capital of 6.6%, a marginal corporate tax rate of 32%, and adebt-equity ratio of 2.4. If the plant has average risk and Goodyear plans to maintain a constantdebt-equity ratio, whatafter-tax amount must it receive for the plant for the divestiture to beprofitable?

 


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