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% (Note: Use Net Debt concept (ND) and leverage ratio = ND/(ND+E)).

#Question 3.1: What is Lucent's WACC (after tax)?
#Question 3.2: 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)

5. Suppose Lucent Technologies has an equity cost of capital of 10%, marketd capitalization of $10.8 billion, and an enterprise value of $14.4 billion. Suppose Lucent's debt cost of capital is 6.1% and its marginal tax rate is 35%.
a. What is Lucent's WACC?
b. If Lucent maintains a constant debt-equity ratio, what is the

The Weighted Average Cost of Capital Method
4.
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.5 million per year, growing at a rate of 2.5% per year. Goodyear has an equity cost of capital of 8.5%, a debt cost of capit

A firm has a capital structure with 40% debt, 50% equity, and 10% preferred stock. If the following information is given, calculate company's WACC.
YTM on firm's bond is 7.2%
Beta is 1.2; risk free rate 5%; market risk premium is 5%
Preferred stock pays dividend of $8 and sells for $100

Malitz Inc. recently hired you as a consultant to estimate the company's WACC. You have obtained the following information. (1) Malitz's noncallable bonds mature in 25 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,075.00. (2) The company's tax rate is 40%. (3) The risk-free rate is 4.50%

You answer the following question:
If the firm issued preferred stock or warrants would it include these in the calculation of its WACC?
Your answer
The firm that issued preferred stock or warrants would only include preferred stock in the calculation of its WACC. Preferred stock has a fixed dividend paid every period fore

Many firms use the weighted average cost of capital for the firm as the hurdle rate when comparing to IRR or as the discount rate in an NPV calculation. However, there is an implicit assumption being made when one does that. What problems can one encounter or what errors may occur if one uses the WACC for evaluating all projec

If a firm's capital structure is 40% debt, 10% preferred stock, and 50% common stock, their tax rate is 40%, and this Kd = 9%, Kp = 5%, and Ks = 12%, what is the firm's WACC? Also, show the formula and entries on a financial calculator.

Copernicus Inc. has determined that its target capital structure will be
60% debt, 10% preferred stock, and 30% common stock. As the financial
manager, the CFO has informed you that the company's before tax cost of
debt is 10%, preferred stock is 14%, and common stock is 16%. In
addition, the company's marginal tax rate