QUESTION 14 Able Ltd. has recently upgraded its production facility, financing the upgrade with the issuance of new common shares. As a result of the changes, its cost structure has changed such that the proportion of fixed to variable costs has increased. Assuming that the firm's underlying business risk is unchanged, which of the following statements is true? 1. It isn't possible to determine whether Able's beta will increase or decrease based on the information provided 2. Its beta will be lower and hence its cost of equity capital will be lower 3. Its beta will be unaffected, since beta only measures the sensitivity of the firm's cash flows to market risk and is unaffected by either production or financing costs 4. Its beta will be higher and hence its cost of equity capital will be higher 1 points Save