Question 1.

Year 0 1 2 3 FTF(Mil) -100 50 100 70 Suppose? Alcatel-Lucent has an equity cost of capital of 10%?, market capitalization of $10.80 ?billion, and an enterprise value of $14.4 billion. Suppose? Alcatel-Lucent's debt cost of capital is 6.1% and its marginal tax rate is 35%.

a. What is? Alcatel-Lucent's WACC?

b. If? Alcatel-Lucent maintains a constant? debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown? here,? c. If? Alcatel-Lucent maintains its? debt-equity ratio, what is the debt capacity of the project in part ?(b?)? . What is? Alcatel-Lucent's WACC? ?Alcatel-Lucent's WACC is __%. ?(Round to two decimal? places.)

b. If? Alcatel-Lucent maintains a constant? debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown? here, LOADING... ?? The NPV of the project is ?$____million.???(Round to two decimal? places.)

c. If? Alcatel-Lucent maintains its? debt-equity ratio, what is the debt capacity of the project in part ?(b?)? The debt capacity of the project in part ?(b?) is as? follows:???(Round to two decimal? places.) Year 0 1 2 3 Debt capacity ?$__million ?$__million ?$___million ?$____million

Question 2.

Given that kipchimat has an equity cost of capital of 10.45 %, market capitalization of $ 11.64 billion, and an enterprise value of $ 16 billion. Suppose Alcatel-Lucent's debt cost of capital is 7.64 % and its marginal tax rate is 38 %.

a. What is Alcatel-Lucent's WACC?

b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here?

c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part

(b)?

The debt capacity of the project in part(b) is asfollows:

Question 3.

Rolex (RMX) currently has no debt in its capital structure. The beta of its equity is 1.12. For each year into the indefinitefuture, Remex's free cash flow is expected to equal $23million. Remex is considering changing its capital structure by issuing debt and using the proceeds to buy back stock. It will do so in such a way that it will have a 33% debt-equity ratio after the change, and it will maintain this debt-equity ratio forever. Assume thatRemex's debt cost of capital will be 7.02%. Remex faces a corporate tax rate of 25%. Except for the corporate tax rate of 25%, there are no market imperfections. Assume that the CAPM holds, therisk-free rate of interest is

5.4%, and the expected return on the market is 11.88%.

a. Using the information provided, fill in the table below.

Debt-EquityDebt Cost ofEquity CostWeighted Average

RatioCapitalof CapitalCost of Capital

Before change in0N/A??%??%

Capital structure

After change in0.337.02%??%??%

b. Using the information provided and your calculations in part(a), determine the value of the tax shield acquired by Remex if it changes its capital structure in the way it is considering.

The value of the tax shield is $__ million. ( Round to two decimal places)