Project - Incremental Cashflow Analysis & Sensitivity Analysis
QUESTIONS - Assume that you are Nancy Smart. Answer the following questions:
1. Calculate the expected value, standard deviation, and the coefficient of variation of KT's sales for the current year.
2. Calculate the expected value, standard deviation, and the coefficient of variation of KT's ROE with the sales figures for the current year.
3. Evaluate the effect of the current sales volatility on the company's business risk.
4. Calculate the expected value, standard deviation, and the coefficients of variation of KT's sales and ROE with the sales forecast for next year.
5. Calculate the value of equity after the new debt issue if KT decides to buy back stocks with the new debt issue. Assume KT does not have any short-term investments.
6. Determine how the expected decrease in sales volatility next year will affect the company's business risk.
7. Calculate the expected value, standard deviation, and the coefficients of variation of KT's current sales and ROE with 30 percent financial leverage. Evaluate the effect of using 30 percent financial leverage on the company's current total risk.
8. Calculate the expected value, standard deviation, and the coefficients of variation of next year's sales forecast and ROE with 30 percent financial leverage. Evaluate the effect of using 30 percent financial leverage on the company's total risk next year.
9. What are the advantages and disadvantages of additional debt on KT?
10. Calculate the cost of equity for KT before and after the new debt issue given the risk-free rate is 3.5% and the market risk premium is 5%.
Attachment:- Assignment.rar