Suppose Alcatel-Lucent has an equity cost of capital of 10.9%, market capitalization of $10.64 billion, and...
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Suppose Alcatel-Lucent has an equity cost of capital of 10.9%, market capitalization of $10.64 billion, and an enterprise value of $14 billion. Assume Alcatel-Lucent's debt cost of capital is 5.6%, its marginal tax rate is 37%, the WACC is 9.13%, and it maintains a constant debt-equity ratio. The firm has a project with average risk. Expected free cash flow, debt capacity, and interest payments are shown in the table: a. What is the free cash flow to equity for this project? b. What is its NPV computed using the FTE method? How does it compare with the NPV based on the WACC method? a. What is the free cash flow to equity for this project? The free cash flow to equity for this project is: (Round all answers to two decimal places. Use a minus sign to indicate a negative number.) Year 1 2 3 FCFE ($ million) 44.42 80.39 57.92 0 -53.30 b. What is its NPV computed using the FTE method? NPV is $ million. (Round to two decimal places.) Suppose Alcatel-Lucent has an equity cost of capital of 10.9%, market capitalization of $10.64 billion, and an enterprise value of $14 billion. Assume Alcatel-Lucent's debt cost of capital is 5.6%, its marginal tax rate is 37%, the WACC is 9.13%, and it maintains a constant debt-equity ratio. The firm has a project with average risk. Expected free cash flow, debt capacity, and interest payments are shown in the table: a. What is the free cash flow to equity for this project? b. What is its NPV computed using the FTE method? How does it compare with the NPV based on the WACC method? a. What is the free cash flow to equity for this project? The free cash flow to equity for this project is: (Round all answers to two decimal places. Use a minus sign to indicate a negative number.) Year 1 2 3 FCFE ($ million) 44.42 80.39 57.92 0 -53.30 b. What is its NPV computed using the FTE method? NPV is $ million. (Round to two decimal places.)
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Answer rating: 100% (QA)
a To calculate the Free Cash Flow to Equity FCFE for each year we need to subtract the interest paym... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0133400694
1st canadian edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford, David A. Stangeland, Andras Marosi
Posted Date:
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