If a project has a higher proportion of fixed to variable costs, holding the risk of its revenues constant: O a. its financial leverage will be higher. O b. its beta will be lower, hence its cost of capital will be lower. O c. its beta will be higher, hence its cost of capital will be higher. O d. its beta will be unaffected, since beta does not measure the sensitivity of the project's cash flows to market risk.
If a project has a higher proportion of fixed to variable costs, holding the risk of its revenues constant: O a. its financial leverage will be higher. O b. its beta will be lower, hence its cost of capital will be lower. O c. its beta will be higher, hence its cost of capital will be higher. O d. its beta will be unaffected, since beta does not measure the sensitivity of the project's cash flows to market risk.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:If a project has a higher proportion of fixed to variable costs, holding the risk of its revenues constant:
O a. its financial leverage will be higher.
O b. its beta will be lower, hence its cost of capital will be lower.
O c. its beta will be higher, hence its cost of capital will be higher.
O d. its beta will be unaffected, since beta does not measure the sensitivity of the project's cash flows to market risk.
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