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business risk, financial risk, and beta

1. Define and Discuss the relationship between business risk, financial risk, and beta (systematic or market risk).

2. Explain why certain shareholders would have a preference on receiving dividends and on the amount of the dividend. If you were a shareholder of Apple, what would you prefer: dividends or stock appreciation? Please explain your reasons.

3. Discuss the optimal amount of accounts receivables relative to the cost and benefits. Please explain how important the accounts receivables are for a company and most importantly, how much do you think a company must have on accounts receivables?

4. Compare and contrast the impact of supply chain management on working capital needs. Please explain why supply chain management is important for a company and how it can increase the cash needs of the company.

Solution Preview

1. Beta gives the systematic risk. The systematic risk is determined by the business risk and the financial risk. Business risk refers to the possibility that a business' cash flows are not enough to cover its operating expenses like rent, wages, and cost of raw materials. On the other hand financial risk refers to the possibility that the business' cash flows are not enough to pay creditors and fulfill its financial responsibilities. Financial risk relates to the business debt, which may be incurred by business operations, but business risk is independent of the debt of the business. Business operating leverage and financial leverage can be combined in several ways to get the required level of systemic risk. High business risk can be offset by low financial leverage to achieve the required systemic risk. Systematic risk or beta measures the volatility of a security or a portfolio compared to the market as a whole.

2. Certain shareholders would have a preference on receiving dividends because dividends represent the cash that the ...

Solution Summary

This solution gives you strong points concerning business risk, financial risk, and beta.

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