1. Company As operations involve a fixed cost of 1million pounds and variable costs equal to 70% of revenues. Company B has 3 million pounds fixed costs and variable costs equal to 50% of revenues. The two companies are similar in all other respects. Determine which of the following statements is the most accurate A.Company A has higher degree of operating leverage and thus a higher beta than company B

B.Company A has a lower degree of operating leverage and thus a higher beta than company B

C.Company As profits are less sensitive to demand shocks and therefore A has a lower beta than B

D.Company Bs profits are less sensitive to demand shocks and therefore B has a lower beta than A

2.Assume that company X carries 100million pounds of debt on which it pays a 10% annual rate. Which of the following statements is correct?

1. If the company generates annual operating cash flows below 100million pounds , it will fail to meet its interest payment.
2. If annual operating cash flows are above 10million pounds , the sum of earnings and depreciation must be positive
3. The company is insolvent unless it generates annual operating cash flows above 50million pounds
4. If annual operating cash flows are 10million pounds, the company has a debt to equity ratio equal to one.