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(Click on the following icon in order to copy its contents into a spreadsheet.) 0 1 2 3 - 100 50 100 70 Year FCF

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(Click on the following icon in order to copy its contents into a spreadsheet.) 0 1 2 3 - 100 50 100 70 Year FCF ($ million) v D=dx V 185.86 151.64 64.52 0.00 46.47 37.91 16.13 0.00 Suppose Alcatel-Lucent has an equity cost of capital of 10.0%, market capitalization of $10.80 billion, and an enterprise value of $14.4 billion. Assume that Alcatel-Lucent's debt cost of capital is 6.1%, its marginal tax rate is 35%, the WACC is 8.4913%, 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 $185.86 million -$100 million = $85.86 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 %. (Round to four decimal places.)

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