Question
Suppose Alcatel-Lucent has an equity cost of capital of 9.5 , market capitalization of $ 10.22 billion, and an enterprise value of $ 14 billion.
Suppose Alcatel-Lucent has an equity cost of capital of 9.5 , market capitalization of $ 10.22 billion, and an enterprise value of $ 14 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.7 % 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 below,
Year 0 1 2 3
FCF ($ million)-100 54 105 74
c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)?
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