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Plant for the divestiture to be profitable

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Reference no: EM131318686

Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.63 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 7.1%, a marginal corporate tax rate of 36%, and a debt-equity ratio of 2.6. 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?

Reference no: EM131318686

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