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3. Understanding business financial risks The total risk in a firm is determined by evaluating the firm's business risk and financial risk. As an analyst,

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3. Understanding business financial risks The total risk in a firm is determined by evaluating the firm's business risk and financial risk. As an analyst, Olivia is comparing two nearly identical manufacturing firms: Allied Biscuit Company and Atherton Crumpet Corp. It is your job to evaluate the relative business and financial risks of Allied Biscuit and Atherton The two firms have the same level of total assets and expected net operating profit after taxes (NOPAT), but they differ on two critical characteristics: total debt and the standard deviation of expected NOPAT. The following table outlines some of Allied Biscuit's and Atherton's characteristics: Allied Biscuit $4,800,000 Atherton $4,800,000 960,000 Total assets Total debt Expected NOPAT Standard deviation of expected NOPAT 2,400,000 1,152,000 1,152,000 321,600 206,400 Use the given financial data to indicate which firm has the higher degree of each type of risk Which firm has more business risk? O Allied Biscuit Company O Atherton Crumpet Corp. 80 evaluate the relative business and financial risks of Allied Biscuit and Atherton The two firms have the same level of total assets and expected net operating profit after taxes (NOPAT), but they differ on two critical characteristics: total debt and the standard deviation of expected NOPAT. The following table outlines some of Allied Biscuit's and Atherton's characteristics: Allied Biscuit Atherton Total assets Total debt $4,800,000 2,400,000 1,152,000 Expected NOPAT $4,800,000 960,000 1,152,000 206,400 Standard deviation of expected NOPAT 321,600 Use the given financial data to indicate which firm has the higher degree of each type of risk. Which firm has more business risk? O Allied Biscuit Company Atherton Crumpet Corp. Which firm has more financial risk? O Atherton Crumpet Corp. O Allied Biscuit Company Grade It Now Save & Continue Continue without saving

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