What is the value of project with average risk

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Reference no: EM132061267

Suppose Lucent has cost of equity of 9%, equity market capitalization of $10 billion, and total debt 4 billion and 0.4 billion of excess amount of cash. Suppose Lucent’s cost of debt is 6% and its marginal tax rate is 35%.

1. What is Lucent’s WACC?

2. If Lucent maintains a constant leverage ratio, what is the value of a project with average risk and the following expected free cash flows ($millions)? NPV analysis using WACC method

Free Cash Flows: -120 (t=0), 60 (t=1), 100 (t=2), 80 (t=3)

3. If Lucent maintains its leverage ratio, what is the debt capacity of the project in the previous question?

4. Perform NPV analysis using APV method using information from the previous questions.

Reference no: EM132061267

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