Question: Differentiate between operating leverage and financial leverage. Discuss how leverage ought to differ across companies depending on their Industry Life cycle stage (age or maturity)

  1. Differentiate between operating leverage and financial leverage. Discuss how leverage ought to differ across companies depending on their
    1. Industry
    2. Life cycle stage (age or maturity)
    3. Stability of free cash flows
  2. What are (and what is the relevance of) unlevered and levered betas? Consider the following while using Hamadas equation.
    1. If AMZN has a beta of 1.2 and no financial leverage, what is its estimated beta if it changes its Debt to Equity ratio (D/S) to 1.
    2. If AAPL has a beta of 1.2 and a D/S ratio of 1, what is its estimated beta if it changes its D/S ratio to 0.7.

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