(Business

and financial

risk)

Which of the following sources of new earnings volatility demonstrates the effect of business versus financial risk (discuss the rationale for your decisions):

a. Amos Gooding Real Estate Company recently constructed a new office building and borrowed 100 percent of the money needed to fund the project.

b. Clearing House Outsourcing has historically paid a printer to prepare all of its printed documents. However, last year the firm acquired its own printing press (paying cash).

c. Smithers Enterprises has been a specialty retail shop that sells outdoor camping equipment. The firm recently decided to purchase a golf course.

a. Amos Gooding Real Estate Company recently constructed a new office building and borrowed 100 percent of the money needed to fund the project.

The fact that the firm borrowed 100% of the cost of the new investment suggests that the firm's

business

financial

risk has risen.(Select from the drop-down menu.)

b. Clearing House Outsourcing has historically paid a printer to prepare all of its printed documents. However, last year the firm acquired its own printing press (paying cash).

In this instance an outsourcing firm has entered into a new business related to printing. Also, the firm paid cash for the asset acquisition. One might think that the firm's

business

financial

risk may have changed.(Select from the drop-down menu.)

c. Smithers Enterprises has been a specialty retail shop that sells outdoor camping equipment. The firm recently decided to purchase a golf course.

It would appear that this firm may have changed its overall

financial

business

risk since the firm was a specialty retailer and now combines this business with that of a golf course.(Select from the drop-down menu.)