The risk caused by variations in income before taxes over time because fixed interest expenses do not change when operating income rises or falls is called:
A) financial risk
B) business risk
C) tax risk
D) purchasing power risk

Question

Quizplus · Accepted Answer

Financial risk is the risk caused by variations in income before taxes over time. This is because fixed interest expenses, such as debt payments, do not change when operating income rises or falls. Business risk, on the other hand, refers to the risk of operating in a particular industry or market. Tax risk is the risk of adverse tax consequences, and purchasing power risk is the risk of inflation reducing the value of money over time.

The Risk Caused by Variations in Income Before Taxes Over