Acetate, inc., has equity with a market value of $22 million and debt with a market value of $11 million. the cost of debt is 8 percent per year. treasury bills that mature in one year yield 4 percent per year, and the expected return on the market portfolio is 10 percent. the beta of acetate’s equity is 1.05. the firm pays no taxes.

Magic realm, inc., has developed a new fantasy board game. the company sold 15,000 games last year at a selling price of $20 per game. fixed expenses associated with the game total $182,000 per year, and variable expenses are $6 per game. production of the game is entrusted to a printing contractor. variable expenses consist mostly of payments to this contractor.required: 1-a. prepare a contribution format income statement for the game last year.1-b. compute the degree of operating leverage.2. management is confident that the company can sell 58,880 games next year (an increase of 12,880 games, or 28%, over last year). given this assumption: a. what is the expected percentage increase in net operating income for next year? b. what is the expected amount of net operating income for next year? (do not prepare an income statement; use the degree of operating leverage to compute your answer.)