Financial risk comes about when:
A)new competitors emerge.
B)new government regulations are introduced.
C)the dividend payout ratio is increased.
D)a company uses fixed-charge finance.

Question

Quizplus · Accepted Answer

Using fixed-charge finance, such as debt financing, increases the company's financial risk as there is a higher obligation to pay back the funds borrowed. This can lead to financial distress if the company is unable to make the required payments, which can ultimately lead to bankruptcy. A, B, and C can also affect a company's financial risk, but they are not as directly related as using fixed-charge finance.

Financial Risk Comes About When