Suppose Luther Industries Is Considering Divesting One of Its Product

question 93

Essay

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?

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Definitions:

Brain Abnormalities

Structural or functional deviations in the brain that may lead to various neurodevelopmental, psychiatric, or neurological conditions.

Supernatural Perspective

An approach that attributes phenomena or events to factors beyond the scientific understanding, often involving deities, spirits, or magic.

Black Magic

A form of magic or supernatural practices intended to cause harm, control, or manipulate events or people in ways that are typically considered malevolent or unethical.

Evil Spirits

Supernatural entities believed in many cultures to be the cause of misfortune, illness, or evil.