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 present in a company's cost structure. When fixed costs are high, the company's net income is more sensitive to changes in revenue, leading to a higher beta. Therefore, operating leverage will increase a project's beta.

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