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    A. Which firm will have higher profits in a recession? In a boom?
    b. Which firm's stock will have a higher beta?

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    Solution Preview

    Discussion of basics

    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 ...

    Solution Summary

    The expert consider two firms producing videocassette recorders. Which firms have a higher profit recession in a boom are determined.