Problem
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.56 million per year, growing at a rate of 2.5% per year. Goodyear has an equity cost of capital of 8.3%, a debt cost of capital of 6.9%, a marginal corporate tax rate of 34%, and a debt-equity ratio of 2.7. 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?