Question
Suppose Alcatel-Lucent has an equity cost of capital of 10.6% , market capitalization of $10.35 billion, and an enterprise value of $15 billion. Suppose Alcatel-Lucent's
Suppose Alcatel-Lucent has an equity cost of capital of 10.6% , market capitalization of $10.35 billion, and an enterprise value of $15 billion. Suppose Alcatel-Lucent's debt cost of 6.4% capital is and its marginal tax rate is 35%.
a. What is Alcatel-Lucent's WACC?
b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here,
Year 0 1 2 3
FCF ($ million) -100 50 95 68
c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part
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