Question
In: Finance
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant...
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $ 1.55 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 7.1 %, a marginal corporate tax rate of 32 %, 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? Round to one decimal
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Goodyear Tire and Rubber Company is the ninth largest tire manufacturer in the world. Here are...
Goodyear Tire and Rubber Company is the ninth largest tire
manufacturer in the world. Here are the sales revenues for the past
five years:
Year
Revenue (millions)
1
$4,877.9
2
5,065.4
3
5,525.6
4
5,729.8
5
5,499.7
a.When might a manager prefer linear
trend/double exponential smoothing techniques to moving
average/simple exponential smoothing techniques and why? (5
points)
b. Based on MAD for the last three years (years 3, 4, and 5),
which method (linear-trend or double-exponential smoothing method
with a...
Suppose Goodyear Tire and Rubber Company has an equity cost of capital of 8.4% a debt...
Suppose Goodyear Tire and Rubber Company has an equity cost of
capital of 8.4% a debt cost of capital of 6.9%, a marginal
corporate tax rate of 35%, and a debt-equity ratio of 2.3. Assume
that Goodyear maintains a constant debt-equity ratio.
a. What is Goodyear's WACC?
b. What is Goodyear's unlevered cost of capital?
c. Explain, intuitively, why Goodyear's unlevered cost of
capital is less than its equity cost of capital and higher than its
WACC.
A) The equity...
Contingent Liabilities The following note accompanied the financial statements for Goodyear Tire and Rubber Company (GT):...
Contingent Liabilities
The following note accompanied the financial statements for
Goodyear Tire and Rubber Company (GT):
We are a defendant in numerous lawsuits alleging various
asbestos-related personal injuries purported to result from alleged
exposure to certain asbestos products manufactured by us or present
in certain of our facilities. Typically, these lawsuits have been
brought against multiple defendants in state and federal courts. To
date, we have disposed of approximately 109,500 claims by defending
and obtaining the dismissal thereof or by...
Goodyear Tire & Rubber Co has a project with initial investment requiring $-120,000 and the following...
Goodyear Tire & Rubber Co has a project with initial
investment requiring $-120,000 and the following cash flows will be
generated because of the project: $27,000; $31,000; $53,000;
$41,000; and $29,000 respectively at the end of each year for the
next five years. If the required rate of return is 0.17, find the
internal rate of return (IRR) of the project.
21.80%
14.87%
15.90%
none of the answers is correct
10.85%
Xylem Inc has a project with initial investment requiring...
The Goodyear Tire & Rubber Company’s December 31, 2011, financial statements reported the following (in millions).
In its 2010 annual report, Caterpillar Inc. reported the following (in millions): 20102009Sales$39,867$29,540Cost of goods sold30,36723,886 As a percentage of Sales, did Caterpillar’s Gross profit increase or decrease during 2011?A) Gross profit increased from 19% to 24%B) Gross profit decreased from 24% to 19%C) Gross profit increased from 76% to 81%D) Gross profit decreased from 81% to 76%E) There is not enough information to answer the question.The Goodyear Tire & Rubber Company’s December 31, 2011, financial statements reported the following...
A steel company is considering the relocation of one of its manufacturing plants. The company’s executives...
A steel company is considering the relocation of one of its
manufacturing plants. The company’s executives have selected four
areas that they believe are suitable locations. However, they want
to determine if the average wages are significantly different in
any of the locations, since this could have a major impact on the
cost of production. A survey of hourly wages of similar workers in
each of the four areas is performed with the following results. Do
the data indicate a...
A steel company is considering the relocation of one of its manufacturing plants. The company’s executives...
A steel company is considering the relocation of one of its
manufacturing plants. The company’s executives have selected four
areas that they believe are suitable locations. However, they want
to determine if the average wages are significantly different in
any of the locations, since this could have a major impact on the
cost of production. A survey of hourly wages of similar workers in
each of the four areas is performed with the following results. Do
the data indicate a...
A steel company is considering the relocation of one of its manufacturing plants. The company’s executives...
A steel company is considering the relocation of one of its
manufacturing plants. The company’s executives have selected four
areas that they believe are suitable locations. However, they want
to determine if the average wages are significantly different in
any of the locations, since this could have a major impact on the
cost of production. A survey of hourly wages of similar workers in
each of the four areas I performed with the following results.
Hourly Wages ($)
Area 1...
Goodyear Tire & Rubber Co has the income statement shown above. What is the Net Profit Margin?
INCOME STATEMENT
Net Sales
$10,000,000
Cost of Goods Sold
$4,000,000
Gross Profit
$6,000,000
Depreciation Expense
$1,600,000
S&A Expenses
$1,368,000
Operating Income (EBIT)
$3,032,000
Interest Expense
$2,700,000
Income before Taxes
$332,000
Income Taxes (42%)
$139,440
Net Income
$192,560
Goodyear Tire & Rubber Co has the income statement shown
above. What is the Net Profit Margin? Round your answers.
A company is considering the purchase of a major piece of equipment for its manufacturing plant....
A company is considering the purchase of a major piece of
equipment for its manufacturing plant. The project would cost $22m
in initial investment and would result in cost savings, before tax,
of $3.25m per year for five years. The equipment could be sold for
$4.5m at the end of the five years. The equipment would also result
in an increase in NWC of $500,000, which will be recovered at the
end of the project. The company’s CCA rate is...
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