Suppose Alcatel-Lucent has an equity cost of capital of 9.8%, market capitalization of $10.95 billion,...
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Suppose Alcatel-Lucent has an equity cost of capital of 9.8%, market capitalization of $10.95 billion, and an enterprise value of $15 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.6% and its marginal tax rate is 34%.
a. What is Alcatel-Lucent's WACC? (Round to two decimal places)
b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here, LOADING...?
| Year | 0 | 1 | 2 | 3 |
| FCF ($ million) | -100 | 47 | 102 | 66 |
c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)?
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