Unformatted text preview: as 2 x 0.34 = 0.68 for either
side of your estimate, you would have a 95% chance of being right.
18 a. If you agree to the fixed price contract, operating leverage increases. Changes
in revenue result in greater than proportionate changes in profit. If all costs are
variable, then changes in revenue result in proportionate changes in profit.
Business risk, measured by βassets, also increases as a result of the fixed price
contract. If fixed costs equal zero, then:
βassets = βrevenue. However, as PV(fixed cost) increases, βas...
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- Spring '14