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Category > Business & Finance Posted 03 Aug 2017 My Price 6.00

Suppose Alcatel-Lucent has an equity cost of capital of 10%, market capitalization of $10.8 billion

  1. uppose Alcatel-Lucent has an equity cost of capital of 10%, market capitalization of $10.8 billion, and an enterprise value of $14.4 billion. Suppose Alcatel-Lucent’s debt cost of capital is 6.1% and its marginal tax rate is 35%.

    1. What is Alcatel-Lucent’s WACC?

    2. 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

- 100

50

100

70

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

 

 

Answers

Alpha Geek
(8)
Status NEW Posted 03 Aug 2017 06:08 PM My Price 6.00

 r-----------WAC-----------C =----------- 10-----------.8/-----------14.-----------4 (-----------10%-----------) +----------- (1-----------4.4----------- - -----------10.-----------8)/-----------14.-----------4 (-----------6.1-----------%) -----------(1 ------------ 0-----------.35-----------) =----------- 8.-----------49%----------- b.----------- Us-----------ing----------- th-----------e W-----------ACC----------- me-----------tho-----------d, -----------the----------- le-----------ver-----------ed -----------val-----------ue -----------of -----------the----------- pr-----------oje-----------ct -----------at -----------dat-----------e 0----------- is----------- VL----------- = -----------50/-----------1.0-----------849-----------

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