You run a perpetual encabulator machine, which generates revenues

averaging $$20$ million per year. Raw material costs are $50\%$ of

revenues. These costs are variable$-$they are always proportional to

revenues. There are no other operating costs. The cost of capital is $9\%.$

Your firm's long$-$term borrowing rate is $6\%.$

Now you are approached by Studebaker Capital Corp., which proposes

a fixed$-$price contract to supply raw materials at $$10$ 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?

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.$)$