Reference no: EM131238381

Suppose Alcatel-Lucent has an equity cost of capital of 9.4 %9.4%, market capitalization of $ 11.20$11.20 billion, and an enterprise value of $ 16.0$16.0 billion with a debt cost of capital of 6.7 %6.7% and its marginal tax rate is 35 %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?

Year	0	1	2	3
FCF ($ million)	negative 100-100	5151	105105	7171

c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? 
a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is 7.897.89%. (Round to two decimal places.) 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?

Year	0	1	2	3
FCF ($ million)	negative 100-100	5151	105105	7171

(Round to two decimal places.)  (Round to two decimal places.) c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? The debt capacity of the project in part (b) is as follows:  The NPV of the project is $94.0194.01 million.

Year	0	1	2	3
Debt capacity	$52.3952.39 million	$nothing million	$nothing million	$0.000.00 million