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Suppose Alcatel - Lucent has an equity cost of capital of 1 0 . 5 % , market capitalization of $ 1 2 . 0
Suppose AlcatelLucent has an equity cost of capital of market capitalization of $billion and an enterprise value of $ billion. Assume AlcatelLucent's debt cost of capital is its marginal tax rate is the WACC is and it maintains a constant debtequity ratio. The firm has a project with average risk. Expected free cash flow, debt capacity, and interest payments are shown in the table:
a What is the free cash flow to equity for this project for each year
b What is its NPV computed using the FTE method? How does it compare with the NPV based on the WACC method?
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