6) Suppose Alcatel-Lucent has an equity cost of capital of 10%, market capitalization of $10.80 billion, and
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6) Suppose Alcatel-Lucent has an equity cost of capital of 10%, market capitalization of $10.80 billion, and an enterprise value of $14.4 billion. Suppose Alcatel-Lucent\\\\\\\'s debt cost of capital is 6.1% and its marginal tax rate is 35%.
a. What is Alcatel-Lucents WACC?
b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here,
Year 0, 1, 2, 3
FCF ($ million) -100, 50, 100, 70
c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)?
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