Question
Suppose Alcatel-Lucent has an equity cost of capital of 10.4%, market capitalization of $10.08 billion, and an enterprise value of $14 billion. Suppose Alcatel-Lucent's debt
Suppose Alcatel-Lucent has an equity cost of capital of 10.4%, market capitalization of $10.08 billion, and an enterprise value of $14 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.4% and its marginal tax rate is 32%.
a. What is Alcatel-Lucent's WACC?
b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown below?
| Year | 0 | 1 | 2 | 3 |
|---|---|---|---|---|
| FCF ($ million) | 100 | 49 | 104 | 73 |
c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)?
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Real Life Money An Honest Guide To Taking Control Of Your Finances
Authors: Clare Seal
1st Edition
1472272293, 978-1472272294
