Please explain why the Present Values were only discounted by the COC, rather than (1+.09)

18. Betas and operating leverage You run a perpetual encabulator machine, which generates revenues averaging $20 million per year. Raw material costs are 50% of revenues. These costs are variable-they are always proportional to revenues. There are no other operating costs. The cost of capital is 9%. Your firm's long-term borrowing rate is 6%. Now you are approached by Studebaker Capital Corp., which proposes a fixed-price con-tract to supply raw materials at $10 million per year for 10 years. a. What happens to the operating leverage and business risk of the encabulator machine if you agree to this fixed-price contract? b. Calculate the present value of the encabulator machine with and without the fixed-price contract. 18. a. If you agree to the fixed price contract, operating leverage will increase. Changes in revenue will result in greater than proportionate changes in profit. Business risk as measured by assets will also increase. asset=revenuePV(asset)PV(revenue)PV(variablecost)=revenue[1+PV(asset)PV(fixedcost)] You can see from the formula. All else equal, higher fixed cost will result in higher assets. b. With the fixed price contract: PV( assets )=PV( revenue )PV( fixed cost )PV( variable cost ) PV( assets )=$20 million /.09$10 million ((1/.06){1/[.06(1+ .06)10]})[(.50$20 million) /.09]/(1+.09)10 PV( assets )=$101,686,818