What are the interest tax shields from the project? What is their present value? d. Show that the APV of Alcatel-Lucent's project matches the value computed using the WACC method Make sure to provide in TEXT. No to SNIP AND HANDRWRITING. MAKE SURE IT IS CORRECT ALSO. NOT FROM CHAT GOT. Clean format. Thank you. I’ll rate you uplike
What are the interest tax shields from the project? What is their present value? d. Show that the APV of Alcatel-Lucent's project matches the value computed using the WACC method Make sure to provide in TEXT. No to SNIP AND HANDRWRITING. MAKE SURE IT IS CORRECT ALSO. NOT FROM CHAT GOT. Clean format. Thank you. I’ll rate you uplike
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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Question
c. What are the interest tax shields from the project? What is their present value ?
d. Show that the APV of Alcatel-Lucent's project matches the value computed using the WACC method
Make sure to provide in TEXT. No to SNIP AND HANDRWRITING. MAKE SURE IT IS CORRECT ALSO. NOT FROM CHAT GOT. Clean format. Thank you. I’ll rate you uplike
Transcribed Image Text:Suppose Alcatel-Lucent has an equity cost of capital of
10.6%,
market capitalization of
$10.65
billion, and an enterprise value of
$15
billion. Assume that Alcatel-Lucent's debt cost of capital is
7.1%,
its marginal tax rate is
37%,
the WACC is
8.8232%,
and it maintains a constant debt-equity ratio. The firm has a project with average risk. The expected free cash flow,
levered value, and debt capacity are as follows:
(Click on the following icon in order to copy its contents into a spreadsheet.)
2
95
68.00
19.72
Year
FCF ($ million)
✓
D=dxV²
0
-100
178.99
51.91
1
45
149.78
43.44
Thus, the NPV of the project calculated using the WACC method is
$178.99 million-$100 million=$78.99 million.
3
74
0.00
0.00
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