Suppose Alcatel-Lucent has an equity cost of capital of 10.1%, market capitalization of $11.52 billion, and an enterprise value of $16 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? 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, ? c. If Alcatel-Lucent maintains its debl-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 8.34 % (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 expected free cash flows as shown here, The NPV of the project is $ 87.51 million. (Round to two decimal places.) Data table 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 (Round to two decimal places) (Click on the following icon in order to copy its contents into a spreadsheet) Year 0 1 2 3 Debt capacity $ million million million million Year 0 1 2 3 FCF ($ million) 100 50 105 66 Print Done
Suppose Alcatel-Lucent has an equity cost of capital of 10.1%, market capitalization of $11.52 billion, and an enterprise value of $16 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? 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, ? c. If Alcatel-Lucent maintains its debl-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 8.34 % (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 expected free cash flows as shown here, The NPV of the project is $ 87.51 million. (Round to two decimal places.) Data table 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 (Round to two decimal places) (Click on the following icon in order to copy its contents into a spreadsheet) Year 0 1 2 3 Debt capacity $ million million million million Year 0 1 2 3 FCF ($ million) 100 50 105 66 Print Done
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Ch 18)
Suppose Alcatel-Lucent has an equity cost of capital of 10.1%, market capitalization of $11.52 billion, and an enterprise value of $16 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?
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,
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 8.34 % (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 expected free cash flows as shown here,
The NPV of the project is $87.51 million. (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: (Round to two decimal places)
Data table
Year
Debt capacity
(Click on the following icon in order to copy its contents into a spreadsheet)
0
1
2
3
$ million
$
million
$
million
$
million
Year
0
1
2
3
FCF ($ million)
100
50
105
66
Print
Done
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