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both questions Operating Leverage Problem Consider a project with expected annual revenues of $120 and costs of 550 in perpetuity. The costs are completely variable,
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Operating Leverage Problem Consider a project with expected annual revenues of $120 and costs of 550 in perpetuity. The costs are completely variable, so that the profit margin of the project will remain constant. Suppose the project has a beta of 1.0, the risk-free rate is 5% and the market risk premium is 5% 1. What is the value of this project? 2. What would be the value of the project if the revenues continue to vary with a beta of 1.0, but 50% of the costs were instead completely fixed and 50% of the costs were variable and vary with the revenues of the project? What beta is implied by this value
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