# Question

Consider Alcatel-Lucent’s project in Problem 5.

In Problem 5, Suppose 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%.

a. What is the free cash flow to equity for this project?

b. What is its NPV computed using the FTE method? How does it compare with the NPV based on the WACC method?

In Problem 5, Suppose 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%.

a. What is the free cash flow to equity for this project?

b. What is its NPV computed using the FTE method? How does it compare with the NPV based on the WACC method?

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