This is a critical thinking and concepts review question. I am trying to figure out from the Essentials of corporate finance by Ross Westerfield Jordan 6e Book for my finance class.
Business risk versus financial risk.
-Explain what is meant by business and financial risk. Suppose firm A has greater business risk than firm B. Is it true that firm A also has higher cost of equity capital? Explain.© BrainMass Inc. brainmass.com March 4, 2021, 9:06 pm ad1c9bdddf
? Business risk is the riskiness of the firm without debt, which is due to the uncertainty associated with the firm's cash flows. This type of risk depends on a number of factors including demand variability, sales price variability, input cost variability, pricing power, R&D efficiency, foreign risk exposure, and the degree of operating leverage ...
This discusses the concept of Business risk versus financial risk