Q1 Suppose Lucent has an equity cost of capital of 10%, market capitalization of $10.8 billion, and

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Q1 Suppose Lucent has an equity cost of capital of 10%, market capitalization of $10.8 billion, and an enterprise value of $14.4 billion. Suppose Amazon's debt cost of capital is 6.1% and its marginal tax rate is 35%.

a.What is Lucent's WACC?

b.If Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the following expected free cash flows (in $m)?

c.If Amazon maintains its debt-equity ratio, what is the debt capacity of the project in year 0, 1, 2 and 3?

Could you explain how to do question C as i dont understand debt capacity? i have done the answer for qns a and b

Posted Date: May 18, 2024 12:00 PM

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Q1 Suppose Lucent has an equity cost of capital of 10%, market capitalization of $10.8 billion, and

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