Which of the following statements concerning risk management is NOT CORRECT?
A) Risk management can reduce the volatility of cash flows,and this decreases the probability of bankruptcy.
B) Risk management makes sense for firms directly engaged in activities that involve commodities whose values can be hedged,but it doesn't make much sense for most other firms.
C) Companies with volatile earnings pay more taxes than companies with more stable earnings due to the treatment of tax credits and the rules governing corporate loss carry-forwards and carry-backs.Therefore,our tax system encourages risk management to stabilize earnings.
D) Risk management can reduce the likelihood of low cash flows,and therefore reduce the probability of financial distress.
E) Risk management involves identifying events that could have adverse financial consequences and then taking actions to prevent and/or to minimize the damage caused by these events.

Question

Quizplus · Accepted Answer

Risk management makes sense for all firms, not just those directly engaged in activities involving commodities. All firms face risks related to their operations, financing, and external factors that can affect their financial performance. Risk management helps to identify, quantify, and mitigate these risks, ultimately reducing the probability of financial distress and increasing the firm's value.

Which of the Following Statements Concerning Risk Management Is NOT