Suppose? Alcatel-Lucent has an equity cost of capital of 9.2 %, market capitalization of $10.80 ?billion, and an enterprise value of $15 billion. Suppose? Alcatel-Lucent's debt cost of capital is 5.9% and its marginal tax rate is 34%.
a. What is? Alcatel-Lucent's WACC?
b. If? Alcatel-Lucent maintains a constant? debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown? here,
Year 0 1 2 3
FCF ($ million) -100 51 105 71
c. If? Alcatel-Lucent maintains its? debt-equity ratio, what is the debt capacity of the project in part ?(b?)?