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1.) 80% of a firm's costs are fixed in nature (rather than variable) and the firm finances its business primarily with debt (80% debt to

1.) 80% of a firm's costs are fixed in nature (rather than variable) and the firm finances its business primarily with debt (80% debt to invested capital). Both of these figures are much higher than the average firm in the S&P 500 Benchmark Index. Given the scenarios presented to you below, what is likely true about this firm's earnings, returns, profits (choose the answer where both items are true).

a. High volatility of earnings and higher stock returns during a recovery relative to firms in the S&P 500

b. This firm will have a very low volatility in their stock returns and will be more profitable relative its peers

c. Higher volatility of earnings relative to the S&P and therefore this company will likely underperform the S&P when the economy is strong.

d. The firm will have low volatility of earnings and higher relative returns compared to the S&P 500 during a contraction

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