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Suppose Alcatel Lucent has an equity cost of capital of 94 market capitalization of 949 billion and an enterprise value of 13 billion Suppose Alcatel Lucents debt cost of capital is 71 and

Suppose Alcatel-Lucent has an equity cost of capital of 9.4%, market capitalization of $9.49 billion, and an enterprise value of $13 billion. Suppose Alcatel-Lucent’s debt cost of capital is 7.1% and its marginal tax rate is 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?

Year                                 0              1              2              3
FCF ($ million)              -100          52           100            65


c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)?

Jun 09 2021 View more View Less

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