Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.50 million per year, growing at a rate of 2.5% per year. Goodyear has an equity cost of capital of 8.5%, a debt cost of capital of 7.0%, a marginal corporate tax rate of 35%, 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? A divestiture would be profitable if Goodyear received more than $ million after tax. (Round to one decimal place.)

Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.50 million per year, growing at a rate of 2.5% per year. Goodyear has an equity cost of capital of 8.5%, a debt cost of capital of 7.0%, a marginal corporate tax rate of 35%, 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? A divestiture would be profitable if Goodyear received more than $ million after tax. (Round to one decimal place.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 7P

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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 $1.50 million per year, growing at a rate of 2.5% per year. Goodyear has an equity cost of capital of 8.5%, a debt cost of capital of 7.0%, a marginal corporate tax rate of 35%, 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? A divestiture would be profitable if Goodyear received more than $ million after tax. (Round to one decimal place.)
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.51 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 6.9%, a marginal corporate tax rate of 37%, and a debt-equity ratio of 2.8. 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?
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 2.5% per year. Goodyear has an equity cost of capital of 8.7%, a debt cost of capital of 6.8%, a marginal corporate tax rate of 38%, 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 how much after tax? (Round to one decimal place.)
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.41 million per year, growing at a rate of 2.3% per year. Goodyear has an equity cost of capital of 8.4%, a debt cost of capital of 7.2%, a marginal corporate tax rate of 32%, 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? A divestiture would be profitable if Goodyear received more than $enter your response here million after tax. (Round to one decimal place.)
Milton Industries expects free cash flows of $4 million each year. Milton's corporate tax rate is 30%, and its unlevered cost of capital is 12%. Milton also has outstanding debt of $24.27 million, and it expects to maintain this level of debt permanently. a. What is the value of Milton Industries without leverage? b. What is the value of Milton Industries with leverage? a. What is the value of Milton Industries without leverage? The value of Milton Industries without leverage is $ million. (Round to two decimal places.) b. What is the value of Milton Industries with leverage? The value of Milton Industries with leverage is $ million. (Round to two decimal places.)
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of 51.54 million per year, growing at a rate of 2.4% per year. Goodyear has an equity cost of capital of 8,7%, a debt cost of capital of 6.7%, a marginal corporate tax rate of 38%, 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?
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Happy Time Inc. is expected to generate the following cash flows for the next year, as shown in the table below. Happy Time now only has one outstanding debt with a face value of $110 million to be repaid in the next year. The current market value for the debt is $67 million. The tax rate is zero. If you invest in the corporate debt of Happy Time Inc. today, what is your expected percentage return on this investment? Cash flow in the next year Economy Probability Amount Boom 0.3 Normal 0.4 Recession 0.3 O 36.87% O -26.37% 64.8% O-16.63% $110 million $101 million $61 million
TechnoLink Berhad is currently an unlevered firm with a weighted average cost of capital (WACC) of 25 percent. The earnings before interest and taxes is forecasted to remain at RM80,000.00 annually. The firm wishes to invest in a new project which requires them borrow RM50,000.00 from a local bank that charges 14 percent interest per annum. The current tax rate for the company is 24 percer REQUIRED: Calculate the following: i. value of the firm without debt ii. value of the firm with debt iii. value of equity after market capitalisation iv. cost of equity after market capitalisation V. weighted average cost of capital (WACC) after market capitalisation
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Kohwe Corporation plans to issue equity to raise $50.7 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10.4 million each year. Kohwe's only asset is this investment opportunity. Suppose the appropriate discount rate for Kohwe's future free cash flows is 7.7%, and the only capital market imperfections are corporate taxes and financial distress costs. a. What is the NPV of Kohwe's investment? b. What is the value of Kohwe if it finances the investment with equity? a. What is the NPV of Kohwe's investment? The NPV of Kohwe's investment is $ million. (Round to two decimal places.) b. What is the value of Kohwe if it finances the investment with equity? The Kohwe finances stment with equity $ million. (Round decimal places.)