A firm's business risk depends upon:
A) its use of debt in the capital structure.
B) the risk of the firm's assets and operations.
C) whether individuals are able to undo the leverage.
D) the costs of financial distress.

Question

Quizplus · Accepted Answer

Business risk is the risk associated with the firm's assets and operations. This includes the nature of the industry in which the firm operates, competition, technology, legal and regulatory environment, and other factors that can impact the profitability and sustainability of the firm's operations. While factors such as leverage and financial distress can also impact a firm's risk profile, they are not components of the firm's inherent business risk.

A Firm's Business Risk Depends Upon