The uncertainty caused by the variability of a firm's cash flows is called ...

Question

Quizplus · Accepted Answer

Business risk refers to the variability of a firm's cash flows caused by factors such as competition, market demand, and operating costs. Financial risk, on the other hand, refers to the uncertainty caused by the firm's financing decisions, such as taking on debt or issuing equity. Financial leverage relates to the use of debt financing to increase returns. Therefore, the correct answer is (B) business risk.

The Uncertainty Caused by the Variability of a Firm's Cash