Sale of the product lines can be considered profitable

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Reference no: EM131050294

Sequins AB is considering selling one of its two product lines. Product line A is expected to generate a free cash flow of 2 million per year with a growth rate of 3%. Product line B is expected to generate a free cash flow of 1 million per year with a growth rate of 5%. Product line A has a 29.8% cost of equity and a beta value of 3.10. Product line B has a beta value of 1.70 and the interest rate for treasury bills (T-bills) is 5%. Sequins AB has a cost of debt at 7%. The corporate tax rate is currently at 35% and Sequins AB has a debt-to-equity ratio of 2 which they plan to keep constant. What amount, after tax, must Sequins AB receive for each product line so that the sale of the product lines can be considered profitable?

Reference no: EM131050294

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