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Drinkware Co. is a company that produces cups. Suppose that it's stock has a beta of 1.2. Drinkware Co. has 10 million dollars of debt,
Drinkware Co. is a company that produces cups. Suppose that it's stock has a beta of 1.2. Drinkware Co. has 10 million dollars of debt, but its future cash flows will always be sufficient to meet the interest obligations on the debt so that the risk that Drinkware goes bankrupt is zero.
Is the following statement true or false: The risk of Drinkware's stock is only business risk, there is no financial risk from Drinkware's debt.
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