Top Posters
Since Sunday
10
s
5
j
4
s
4
C
3
W
3
a
3
H
3
s
3
a
3
o
3
K
3
Home Q & A Board Other Fields Homework Help Business Finance
New Topic  
EpiscoWhat EpiscoWhat
wrote...
Go to Answer
Posts: 268
Rep: 4 0
5 years ago
Suppose Luther Industries is considering divesting one of its product lines.  The product line is expected to generate free cash flows of $2 million per year, growing at a rate of 3% per year.  Luther has an equity cost of capital of 10%, a debt cost of capital of 7%, a marginal tax rate of 35%, and a debt-equity ratio of 2.  If this product line is of average risk and Luther plans to maintain a constant debt-equity ratio, what after- tax amount must it receive for the product line in order for the divestiture to be profitable?
Textbook 
Corporate Finance: The Core

Corporate Finance: The Core


Edition: 4th
Authors:
Read 567 times
8 Replies
Replies
Answer verified by a subject expert
pbrown223pbrown223
wrote...
#1
Posts: 439
Rep: 10 0
5 years ago
Sign in or Sign up in seconds to unlock everything for free
More solutions for this book are available here
rwacc =  (.10) +  (.07)(1 - .35) = .063667
  =   = $59.406 million
1

Related Topics

wrote...
#2
3 years ago
Thank you
wrote...
#3
3 years ago
thanks !
wrote...
#4
2 years ago
thank
wrote...
#5
2 years ago
Thank you
wrote...
#6
2 years ago
Thank you
wrote...
#7
2 years ago
thankyou
wrote...
#8
2 years ago
spasibo
New Topic      
Quick Reply
Explore
Post your homework questions and get free online help from our incredible volunteers
  437 People Browsing
 464 Signed Up Today
Start New Topic Take the Tour Study Tips Study ToolsNew Topics Trending Browse by Textbook
Related Images
  
 235
  
 204
  
 150
Your Opinion
What's your favorite math subject?
Votes: 184
Previous poll results: Do you believe in global warming?