LALC's cost of capital is 10 percent. Financial risk refers to the extra risk stockholders bear as a result of the use of debt as compared with the risk they would bear if no debt were used. True b. False 12. Thus, the two firms must have the same business risk . True b. False 13.
Business risk is concerned with the operations of the firm.
Sales price variability. The extent to which operating costs are fixed. Changes in required returns due to financing decisions. The ability to change prices as costs change. If you know that your firm is facing relatively poor prospects but needs new capital, and you know that investors do not have this information, signaling theory would predict that you would a.