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Lucent Technologies has equity cost of capital of 10%, market capital of $10.8 bil and enterprise value of $14.4 bil Suppose Lucent's debt cost of...

Lucent Technologies has equity cost of capital of 10%, market capital of $10.8 bil and enterprise value of $14.4 bil Suppose Lucent's debt cost of capital is 6.1% & marginal tax rate is 35%. What is Lucent's WACC? If Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the following expected free cash flows? YEAR 0 1 2 3 FCF -100 50 100 70 If Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? What is Lucent's unlevered cost of capital? What is the unlevered value of this project? What are interest tax shields from the project? What is the free cash flow to equity for this project? What is its NPV computed using the FTE method? How does it compare with the NPV based on the WACC method?

This question was asked on Mar 19, 2010.

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