Question
Suppose Alcatel-Lucent has an equity cost of capital of 9.6 %, market capitalization of $9.49 billion, and an enterprise value of $13 billion. Suppose Alcatel-Lucent's
Suppose Alcatel-Lucent has an equity cost of capital of 9.6 %, market capitalization of $9.49 billion, and an enterprise value of $13 billion. Suppose Alcatel-Lucent's debt cost of capital is 5.7% and its marginal tax rate is 33%.
a. What is Alcatel-Lucent's WACC? (Round to two decimalplaces.)
b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here
Year 0 1 2 3
FCF ($ million) 100 49 95 69
The NPV of the project is__________? (Round to two decimalplaces.)
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 asfollows:(Round to two decimalplaces.)
Year 0 1 2 3
Debt capacity ____________Million ___________ Million ____________Million ______________ Million
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