Suppose Goodyear Tire and Rubber Company has an equity cost of capital of 8.50%, a...
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Finance
Suppose Goodyear Tire and Rubber Company has an equity cost of capital of 8.50%, a debt cost of capital of 6.10%, a marginal corporate tax rate of 21%, and a debt-equity ratio of 2.80. Assume that Goodyear maintains a constant debt-equity ratio.
B. Suppose Goodyear is considering divesting one of its manufacturing plants that is expected to generate free cash flows of $1.46 million per year (starting one year from now), growing at a rate of 2.5% per year forever. 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 (rounded to two decimals, in millions of dollars)?
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