Please answer the following

This problem shows that increasing the proportion of fired versus variable casts of a pmject can signicantly increase a project's beta (and reduce its value). Project B generam $5,000 revenue and $1,000 cost each year, in perpetuity. When the costs are completely variable, the project has a beta of -0.1, the risk-'ee rate is 5%, and the expected return of the market is 15%. Assume CAPM holds. (a) (Zpt) What is the appropriate cost of capital (discount rate), r3, for the project? (Hint: use the CAPM formula.) (b) (3pc) What is the NPV of the project? (Hint: Discount the revenue and costs by r5) (0) (mm) Suppose the annual costs have changed to $500 variable and $500 xedi (i) (Spt) What is the present value of the project's revenue? (Hint: See part (b)'s hint) (ii) (apt) What is the present value of the project's variable costs? (Hint: See part (b)'s hint) (iii) (3pt) What is the present value of the project's xed cost? (Hint: Fixed costs has no risk and should be discounted by ff.) (iv) (1p) What is the NPV of the project after the change of its cost structure? (Hint: The answer should be $102, 500.) (d) (l5pt) As in part (c), the costs are $500 variable and 3500 xed end the revenues have the same risk as before, We take steps to calculate the new 3. the new "appropriate" discount rate for the project, and eventually the new N'PV. We should get the same N'PV ($102,500) as part (c) at the end. (i) (2pt) State the valua of the betas for the revenue (13m), the variable costs (ve), and the xed costs (5pc) (Hint: Revenues and variable costs have the same risks as before Fixed cost has no risk.) (ii) (4pt) Project B is a combination of revenues, variable costs, and xed costs, weighted by their respective present valuesr Use the calculations in part (c) to calculate Project B's beta after the change of it cost structure Keep 4 decimal places in all your calculations. (Hint: -0.1098) (iii) (3pt) Due to the change in its cost structure, Project B's overall risk has changed and is reected in the project beta in part (ii). Use the new project beta you calculated in part (ii) and the CAPM equation to calculate the appropriate discount rate Project B. (iv) (Apt) The discount rate in part (iii) is the "overall" project discount rate. so it can be used to discount the project's overall cash ow, i.e., revenue - costs. (In contrast, in (c.i) and (c.ii) two diiferent discount rates were used to discount the revenue and the xed costs because we considered their risks separately), Use the discount rate in part (iii) to calculate the project NPVi Round your answer to the nearest $100 (Hint: The nal answer should be the same as the NPV you calculated in (ciii))