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Lucent WACC Calculation

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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)

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Solution Summary

Calculation on WACC and a project's NPV

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