You run a perpetual encabulator machine, which generates revenues averaging $$35$ million per year. Raw material costs are $60\%$ of revenues. These costs are variable$$they are always proportional to revenues. There are no other operating costs. The cost of capital is $16\%.$ Your firm$$s long$-$term borrowing rate is $13\%.$

Now you are approached by Studebaker Capital Corp., which proposes a fixed$-$price contract to supply raw materials at $$21\mathrm{.}00$ million per year for $10$ years.

a$.$ What happens to the operating leverage and business risk of the encabulator machine if you agree to this fixed$-$price contract?

multiple choice

Operating leverage and business risk increases

Operating leverage and business risk decreases

b$.$ Calculate the present value of the encabulator machine with and without the fixed$-$price contract. $($Do not round intermediate calculations. Enter your answers in dollars not in millions. Round your answers to the nearest whole dollar amount.$)$