medium · Principles of Finance cost-of-capital-structure

How should this impact the project-specific hurdle rate compared to a similar project with low operating leverage?

1. Operating leverage only changes the firm's cost of debt and has no bearing on the cost of equity.
2. The hurdle rate should actually be lower here, since fixed costs give the project a stable cash base.
3. No project-specific adjustment is needed as long as the firm's overall operating leverage stays roughly the same.
4. The project-specific hurdle rate should be higher because high operating leverage increases the asset β.

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