What is business risk, Financial Management

Assignment Help:

What is Business risk

It is related to response of the firm's earnings before taxes andinterest, or operating profits, to changes in sales. When cost of capital is used to evaluate investment alternatives, it is presumed that acceptance of the proposed projects won't affect the firm's business risk.  Types of projects accepted by a firm can greatly affect its business risk.

If a firm accepts a project which is considerably more risky than average, suppliers of funds to the firm are quite likely to raise cost of funds. This is due to the decreased probability of the fund suppliers' receiving the expected returns on their money. A long-term lender would charge higher interest on loans if the probability of receiving periodic interest from the firm and eventually regaining the principal is decreased. Common stockholders would require the firm to increase earnings as compensation for increases in the uncertainty of receiving dividend payments or ably appreciation in value of their stock.

 


Related Discussions:- What is business risk

CAPM, Techiniques of capm Effects of capm

Techiniques of capm Effects of capm

Explain the competitive benchmarking, Explain the Competitive Benchmarking ...

Explain the Competitive Benchmarking Healthcare services or Hospital are compared to rival 'competition 'in the same industry for instance methods of patient care and levels o

Average standard hook cycle - indirect cost, Following is the information f...

Following is the information furnished by a private port for investing Rs. 10 crore in a 20 Tonne Gantry Crane. The entire funding is from a loan carrying an interest of 11%. The l

What is bid, Bid The price buyers provide to acquire securities or pri...

Bid The price buyers provide to acquire securities or privacy from sellers.

Plugging back of the future - important source of capital, Plugging back of...

Plugging back of the future of profit means the reinvestment by the concerns of its surplus in the business. it is an internal financial of the business and it is more suitable for

Explain the term present value of the firm''s operations, Explain the term ...

Explain the term "present value of the firm's operations" (also known as Enterprise Value ).  What does this number represent? The present value of the company's free cash flo

What do you mean by marketability, Q. What do you mean by Marketability? ...

Q. What do you mean by Marketability? Marketability: The firm must be able to sell its holdings and realize cash as and when required. The securities must be readily marketable

Explain cross border acquisitions and green field investment, Why do you th...

Why do you think the host country tends to resist cross-border acquisitions, rather as compared to green field investments? Answer: The host country is inclined to view green f

Sovereign debt , Sovereign debt is a debt instrument guaranteed by th...

Sovereign debt is a debt instrument guaranteed by the government. The other names for sovereign debts are sovereign bonds or government bonds. They are issued in

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd