Task 10

Suppose Lucent Technologies has an equity cost of capital of 10.9%, market capitalization of $10.08 billion, and an enterprise value of $14 billion. Suppose Lucent's debt cost of capital is 6.1%, its marginal tax rate is 37%, the WACC is 8.9240%, and it maintains a constant debt-equity ratio. The firm has a project with average risk. The expected free cash flow, levered value, and debt capacity are as follows:

Year	0	1	2	3
FCF ($ millon)	-100	47	102	65
VL	179.42	148.43	59.67	0
D=d*VL	50.24	41.56	16.71	0

Thus, the NPV of the project calculated using the WACC method is 179.42 - 100 = 79.42

a. What is Lucent's unlevered cost of capital?

Unlevered cost of capital is ________ (Round to four decimal places.)

b. What is the NPV of the project without leverage?

The NPV of the project without leverage is _________ million. (Round to two decimal places.)

c. What is the present value for the interest tax shields from the project?

PV of the interest tax shields is _________ million (Round to two decimal places.)

d. What is the NPV of the project calculated using the APV method?

The NPV of the project calculated using the APV method is _________ million. (Round to two decimal places.)