Suppose Alcatel-Lucent has an equity cost of capital of 10.5%, market capitalization of $9.36 billion, and an enterprise value of $13 billion. Assume Alcatel-Lucent's debt cost of capital is 6.7%, its marginal tax rate is 34%, the WACC is 8.80%, 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: D a. What is the free cash flow to equity for this project? b. What is its NPV computed using the FTE method? How does it compare with the NPV based on the WACC method? 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 2 3 FCFE (S million)
Suppose Alcatel-Lucent has an equity cost of capital of 10.5%, market capitalization of $9.36 billion, and an enterprise value of $13 billion. Assume Alcatel-Lucent's debt cost of capital is 6.7%, its marginal tax rate is 34%, the WACC is 8.80%, 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: D a. What is the free cash flow to equity for this project? b. What is its NPV computed using the FTE method? How does it compare with the NPV based on the WACC method? 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 2 3 FCFE (S million)
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter7: Corporate Valuation And Stock Valuation
Section: Chapter Questions
Problem 1P: Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1...
Related questions
Question
3.
Year 0 1 2 3
FCF ($ million) -100 45 97 73
D=dxVL 50.39 42.23 18.79 0.00
Interest 0.00 3.38 2.83 1.26
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT