Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.46 million per year, growing at a rate of 2.6% per year. Goodyear has an equity cost of capital of 8.8%, a debt cost of capital of 7.1%, a marginal corporate tax rate of 33%, and a debt-equity ratio of 2.5. 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. (Round to one decimal place.)

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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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 $1.46 million per year, growing at a rate of 2.6% per year. Goodyear has an equity cost of capital of 8.8%, a debt cost of
capital of 7.1%, a marginal corporate tax rate of 33%, and a debt-equity ratio of 2.5. 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 r the divestiture to be profitable?
A divestiture would be profitable if Goodyear received more than $ million after tax. (Round to one decimal place.)
Transcribed Image Text:Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.46 million per year, growing at a rate of 2.6% per year. Goodyear has an equity cost of capital of 8.8%, a debt cost of capital of 7.1%, a marginal corporate tax rate of 33%, and a debt-equity ratio of 2.5. 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 r the divestiture to be profitable? A divestiture would be profitable if Goodyear received more than $ million after tax. (Round to one decimal place.)
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