Increasingly assertive institutional stockholders

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In the face of disappointing earnings results and increasingly assertive institutional stockholders, Eastman Kodak was considering the sale of its health division which had an EBIT of $560 million in its most recent year from revenues of $5285 billion. The firm’s expected growth rate is expected to be 6% for the next 5 years and fall to 2% thereafter. Capital expenditure in the health division was $420 million last year and depreciation was $350 million. Both are expected to grow at 4% in the long run. Working capital requirements are 10% of sales. The average equity beta of companies competing with Eastman Kodak’s health division was 1.15. Eastman Kodak’s health division has a debt ratio of .20 and a debt cost of 7.5%. The company has a tax rate of .40 and the T-Bond rate is 7%.

Estimate the division’s WACC.

Estimate the division’s value using the DCF approach.

Reference no: EM131942964

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