You run a perpetual encabulator machine, which generates revenues averaging $24 million per year. Raw material costs are 50% of revenues. These costs are variablethey are always proportional to revenues. There are no other operating costs. The cost of capital is 12%. Your firm's long-term borrowing rate is 9%.

Now you are approached by Studebaker Capital Corp., which proposes a fixed-price contract to supply raw materials at $12 million per year for 8 years.

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

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.)

Find the Present Value for the following

With contract$

Without contract $