Question
SupposeAlcatel-Lucent has an equity cost of capital of 9%, market capitalization of $10.35 billion, and an enterprise value of $15 billion. SupposeAlcatel-Lucent's debt cost of
SupposeAlcatel-Lucent has an equity cost of capital of 9%, market capitalization of $10.35 billion, and an enterprise value of $15 billion. SupposeAlcatel-Lucent's debt cost of capital is 6.6% and its marginal tax rate is 32%.
a. What isAlcatel-Lucent's WACC?
b. IfAlcatel-Lucent maintains a constantdebt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shownhere,
SupposeAlcatel-Lucent has an equity cost of capital of 9%, market capitalization of $10.35 billion, and an enterprise value of $15 billion. SupposeAlcatel-Lucent's debt cost of capital is 6.6% and its marginal tax rate is 32%.
a. What isAlcatel-Lucent's WACC?
b. IfAlcatel-Lucent maintains a constantdebt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shownhere,
Year 0 1 2 3
FCF ($ million) -100 50 102 66
c. IfAlcatel-Lucent maintains itsdebt-equity ratio, what is the debt capacity of the project in part (b)?
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Principles of Managerial Finance
Authors: Lawrence J. Gitman, Chad J. Zutter, Wajeeh Elali, Amer Al Roubaix
Arab World Edition
1408271583, 978-1408271582
