What is the unlevered value of the project

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Suppose Lucent Technologies has an equity costof capital of 10%, market capitalization of $10.8 billion, and anenterprise value of $14.4 billion. Suppose Lucent'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-equityratio, what is the value of a project with average risk and thefollowing free cash flows?
Year 0 1 2 3
FCF -100 50 100 70
c.) If Lucent maintains its debt-equity ratio, whatis the debt capacity of the project in part (b)?
d.) What is Lucent's unlevered cost of capital?
e.) What is the unlevered value of the project?
f.) What are the income tax shields from the project? What is their present value?
g.) Show that the APV of Lucent's projec tmatches the value computed using the WACC method.
h.) What is the free cashflow to equity for this project?
i.) What is its NPV computed using the FTEmethod? How does it compare with the NPV based on the WACCmethod?

Reference no: EM13305975

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