What effect might operating leverage be expected to have on a project's Beta?
A)Beta will increase.
B)Beta will decrease.
C)Beta will not be affected.
D)The effect depends on the market risk premium.

Question

Quizplus · Accepted Answer

Operating leverage refers to the degree to which fixed costs are used in a company's operations. The higher the operating leverage, the more sensitive the company's earnings will be to changes in revenue. This increases the overall risk of the company, and therefore the project's beta will increase.

What Effect Might Operating Leverage Be Expected to Have on a Project's