How does high business risk affect firm risk?
A)Higher business risk increases the volatility of capital structure.
B)Higher business risk increases the volatility of EBIT.
C)Higher business risk increases the volatility of financial costs.
D)Higher business risk increases the volatility of the firm's asset structure.

Question

Quizplus · Accepted Answer

Higher business risk increases the volatility of EBIT (earnings before interest and taxes) which in turn affects the overall firm risk. This is because high business risk leads to a greater possibility of not meeting financial obligations and a higher likelihood of financial distress, which can negatively impact shareholders and the firm's overall value. Other choices (A, C, and D) may also be affected by high business risk, but do not directly impact the overall firm risk as much as EBIT volatility.

How Does High Business Risk Affect Firm Risk