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?)?