Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started