The CFO has requested from you, a risk assessment of Strident Marks. Think about the risks inherent in Strident Marks and how to quantify these risks. Discuss the use of standard deviation to measure risk. When is this type of calculation appropriate, and when is the coefficient of variation an appropriate measure of risk?
The following website, found in the phase resources, might be useful:
* Revisiting the Capital Asset Pricing Model (http://www.stanford.edu/~wfsharpe/art/djam/djam.htm)© BrainMass Inc. brainmass.com April 3, 2020, 4:54 pm ad1c9bdddf
Risk is an aspect of any organization's operation. When it is recognized, understood, and managed, risk can set the stage for sustainable growth. Companies need identify risk within their operations and plan a systematic approach to managing it.
According to www.anao.gov.au:
"Effective risk management contributes to better decision-making because it develops a deeper insight into risks and their potential impact. It is a structured and disciplined approach: it aligns strategy, processes, people, technology, and knowledge with the purpose of evaluating and managing the uncertainties the enterprise faces as it creates value."
For our current purposes, we can classify the risk of a firm into two types
?Business risk and financial risk.
? 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
? Financial risk is the risk that results from the use of debt. Since debt issues come with the obligation to make fixed payments, regardless of the business fortunes of the enterprise, they introduce a higher degree of uncertainty to NOPAT. Thus a higher degree of financial leverage, while increasing expected return on equity also increases the riskiness of those returns.
RISK AND BETA
Risk is the uncertainty that you may not earn your expected return on your investments. For example, you may expect to earn 20% on your stock mutual fund every year. But your actual rate of return may be much lower.
For example, the S&P 500 index averaged yearly gains of about 20% for the five years that ended in 1999. In 2000, however, the index declined more than 9%. Bonds, meanwhile, performed better than stocks for the first since 1994.
Explanation of beta ...
Risk is an aspect of any organization's operation. When it is recognized, understood, and managed, risk can set the stage for sustainable growth. Companies need identify risk within their operations and plan a systematic approach to managing it....(more in posting)....six references.