Answered step by step
Verified Expert Solution
Question
1 Approved Answer
3. Understandingbusiness financial risks The total risk in a firm is determined by evaluating the firm's business risk and financial risk. As an analyst,
3. Understandingbusiness 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 Co. and Atherton Crumpet Corp. It is your job to evaluat 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 characteristi 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 $4,800,000 2,400,000 960,000 Expected NOPAT 1,152,000 1,152,000 Standard deviation of expected NOPAT 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? Atherton Crumpet Corp. Allied Biscuit Co. Which firm has more financial risk? Atherton Crumpet Corp. O Allied Biscuit Co.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started