Question
Suppose Alcatel-Lucent has an equity cost of capital of 10.7%, market capitalization of $9.80 billion, and an enterprise value of $14 billion. Suppose Alcatel-Lucent's debt
Suppose Alcatel-Lucent has an equity cost of capital of 10.7%, market capitalization of $9.80 billion, and an enterprise value of $14 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.9%
and its marginal tax rate is 34%.
(Round to two decimal places.)
a. What is Alcatel-Lucent's WACC?
b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here,
Year0123
FCF ($million) -100549967
NPV=Levered value - $100 million.
c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)?
Year 0 1 23
Debt capacity$? Million $? Million $? Million $?Million
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