1.) 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 1 (5pts):What is Lucent’s WACC (after tax)?

#Question 2 (5pts):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)

#Question 3 (5pts):If Lucent maintains its leverage ratio, what is the debt capacity of the project in the previous question? (use the Leverage ratio in Question 3.1)

#Question.4(5pts): Perform NPV analysis using APV method using information from the previous questions

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