Suppose Alcatel-Lucent has an equity cost of capital of 9.4%, market capitalization of $9.49 billion, and an
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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?
c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)?
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Corporate Finance The Core
ISBN: 9781292158334
4th Global Edition
Authors: Jonathan Berk, Peter DeMarzo
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