Suppose Alcatel-Lucent has an equity cost of capital of 9.4 %9.4%, market capitalization of $ 11.20$11.20 billion, and an enterprise value of $ 16.0$16.0 billion with a debt cost of capital of 6.7 %6.7% and its marginal tax rate is 35 %35%. a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the following expected free cash flows?
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Year
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0
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1
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2
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3
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FCF ($ million)
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negative 100-100
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5151
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105105
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7171
|
c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)?
a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is 7.897.89%. (Round to two decimal places.) b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the following expected free cash flows?
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Year
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0
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1
|
2
|
3
|
|
FCF ($ million)
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negative 100-100
|
5151
|
105105
|
7171
|
(Round to two decimal places.) (Round to two decimal places.) 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 as follows: The NPV of the project is $94.0194.01 million.
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Year
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0
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1
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2
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3
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Debt capacity
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$52.3952.39 million
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$nothing million
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$nothing million
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$0.000.00 million
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