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4. Understanding business and financial risks The total risk in a firm is determined by evaluating the firm's business risk and financial risk. As an
4. Understanding business and 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: Lost Pigeon Manufacturing Company and Golden Fish Production ine, It is your job to evaluate the relative business and finandal risks of Lost Plgeon and Golden fish. The two firms have the same level of total assets and expected net operating profit after taxes (NOPAT), but they differ in two critical characteristics: total debt and the standard deviation of the expected NOPAT. The following table outlines some of Lost Pigeon's and Golden Fish's major attributes: Use the given financial data to indicate which firm has the higher degree of each type of risk. Which firm has more business risk? Lost Pigeon Golden Fish Which firm has more financial risk? Lost Pigeon Golden Fish
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