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Homework answers / question archive / Suppose? Alcatel-Lucent has an equity cost of capital of 10

Suppose? Alcatel-Lucent has an equity cost of capital of 10

Accounting

Suppose? Alcatel-Lucent has an equity cost of capital of 10.1%?, market capitalization of $12.48 ?billion, and an enterprise value of $16 billion. Assume? Alcatel-Lucent's debt cost of capital is 6.8 %6.8%?, its marginal tax rate is 36%?, the WACC is 8.84%?, 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:

Year 0 1 2 3

__________________________________________

FCF ($ million) -100 52 95 70

D=d*VL 40.10 32.10 14.15 0.00

interest 0.00 2.73 2.19 0.96

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

0

1

2

3

FCFE ?($ million)

_____

_____

_____

_____

b. What is its NPV computed using the FTE? method? How does it compare with the NPV based on the WACC? method?

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