Suppose Alcatel$-$Lucent has an equity cost of capital of $10\mathrm{.}6\%,$ market capitalization of $$9\mathrm{.}80$ billion, and an

enterprise value of $$14$ billion. Assume that Alcatel$-$Lucent's debt cost of capital is $6\mathrm{.}3\%,$ its marginal tax rate is $36\%,$

the WACC is $8\mathrm{.}6296\%,$ 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 $$181\mathrm{.}62$ million $-$$$100$ million $=$$$81\mathrm{.}62$ 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

Data table

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