Question
Suppose Alcatel-Lucent has an equity cost of capital of 10.9 %, market capitalization of $ 11.52 billion, and an enterprise value of $ 16 billion.
Suppose Alcatel-Lucent has an equity cost of capital of 10.9 %, market capitalization of $ 11.52 billion, and an enterprise value of $ 16 billion. Suppose Alcatel-Lucent's debt cost of capital is 7.4 % and its marginal tax rate is 37 %.
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?
c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part
(b)?
The debt capacity of the project in part(b) is as follows:
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