Goodyear is thinking of divesting one of the plants. The plant will generate free cash flows (FCF) of $3.8 million at the end of the first year and the cash flows will grow at 3% (assume this growth occurs from time zero). The plant is financed with a debt level of $50 million which is expected to remain constant. Goodyear has an equity cost of capital of 10% and a debt cost of capital of 6% and a marginal tax rate of 40%. If the plant has an average risk similar to the whole firm, and a current leverage ratio of 0.5, what is the present value of the tax shield?

Answer rating: 100% (QA)

To calculate the present value of the tax shield we first need to find the val... View the full answer