Increasing the operating or business risk of a firm will increase the variability of:
A)return on equity (ROE).
B)return on investment (ROI).
C)there is no effect on the variability of ROE and ROI.
D)both the ROE and ROI

Question

Quizplus · Accepted Answer

Both the return on equity (ROE) and return on investment (ROI) will be affected by an increase in business risk. Higher business risk means there is a higher likelihood that the company will experience financial instability and/or losses, which will lower the ROE and ROI. Conversely, reducing business risk can lower variability in both ROE and ROI.

Increasing the Operating or Business Risk of a Firm Will