Which two of the following best relate to business risk and financial risk?
A) The increased expected return from increasing debt more than compensates for the higher variability resulting in climbing share prices.
B) The decreased expected return from increasing debt more than compensates for the lower variability resulting in climbing share prices.
C) Firms with high business risk are in a position to take on higher levels of financial risk than those with low business risk.
D) Firms with low business risk are in a position to take on higher levels of financial risk than those with high business risk.

Question

Quizplus · Accepted Answer

A relates to the concept that increasing debt can lead to higher returns, but also higher risk, affecting share prices. D indicates that firms with low business risk can afford to take on more financial risk, as they have a stable base to manage additional debt.

Which Two of the Following Best Relate to Business Risk