Which of the following situations would intensify the business risk borne by a firm's common stockholders?
A)The firm issues new fixed-income securities, such as bonds, to raise funds to support operations.
B)The firm takes actions to stabilize its annual sales.
C)The firm starts purchasing from a supplier that allows it to renegotiate raw materials costs every six months.
D)The firm reduces its use of fixed operating costs.
E)The firm issues new common stock to raise funds.

Question

Quizplus · Accepted Answer

Issuing new fixed-income securities, such as bonds, increases the firm's fixed financial obligations (interest payments), which amplifies the variability of net income and, consequently, the business risk for common stockholders.

Which of the Following Situations Would Intensify the Business Risk