Question
Suppose Alcatel-Lucent has an equity cost of capital of 9%, market capitalization of $10.95 billion, and an enterprise value of $15 billion. Suppose Alcatel-Lucent's debt
Suppose Alcatel-Lucent has an equity cost of capital of 9%, market capitalization of $10.95 billion, and an enterprise value of $15 billion. Suppose Alcatel-Lucent's debt cost of capital is 7.3% and its marginal tax rate is 38%. 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, -100
year 1, 47
year 2, 105
year 3, 72
? c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)?
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