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Suppose Alcatel-Lucent has an equity cost of capital of 10.1%, market capitalization of $9.80 billion, and an enterprise value of $14 billion. Assume that Alcatel-Lucent's

image text in transcribed Suppose Alcatel-Lucent has an equity cost of capital of 10.1%, market capitalization of $9.80 billion, and an enterprise value of $14 billion. Assume that Alcatel-Lucent's debt cost of capital is 7.4%, its marginal tax rate is 33%, the WACC is 8.5574%, 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 $188.90 million $100 million =$88.90 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 (Click on the following icon in order to copy its contents into a spreadsheet.)

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