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Can you show me how to solve for question c? Thank you! Suppose Alcatel-Lucent has an equity cost of capital of 10.9%, market capitalization of
Can you show me how to solve for question c? Thank you!
Suppose Alcatel-Lucent has an equity cost of capital of 10.9%, market capitalization of $10.35 billion, and an enterprise value of $15 billion. Assume that Alcatel-Lucent's debt cost of capital is 6.7%, its marginal tax rate is 34%, the WACC is 8.8918%, and it maintains a constant debt-equity ratio. The firm has a project with average risk. The expected free cash flow, levered value, and debt capacity are as follows: Thus, the NPV of the project calculated using the WACC method is $186.58 million - $100 million = $86.58 million. a. What is Alcatel-Lucent's unlevered cost of capital? b. What is the unlevered value of the project? c. What are the interest tax shields from the project? What is their present value? d. Show that the APV of Alcatel-Lucent's project matches the value computed using the WACC method. a. What is Alcatel-Lucent's unlevered cost of capital? Alcatel-Lucent's unlevered cost of capital is 9.5980 %. (Round to four decimal places.) b. What is the unlevered value of the project? The unlevered value of the project is $ 184.16 million. (Round to two decimal places.) c. What are the interest tax shields from the project? What is their present value? The present value of the interest tax shields from the project is $ million. (Round to two decimal places.)Step by Step Solution
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