Firms deal with different types of risk in their day-to-day operations and adopt risk management strategies. It is important to understand why firms manage risk. Theoretically, financial management strategies should be undertaken when they increase the price of the firm's common stock. This means that your analysis of a risk management strategy should also involve an examination of the consequences of the strategy on the firm's free cash flows and its WACC. True or False: For the strategy to increase the firm's share price, it should increase the firm's expected future free cash flows and/or increase its WACC. O True O False In certain cases, bondholders and shareholders hedge their investments individually to meet their desired risk management objectives. This is often referred to as a homemade hedge. The use of a homemade hedge by well-diversified investors can the benefits of risk management activities undertaken by the firm. Detroit Diesel Services Company has applied risk management techniques in an effort to reduce the volatility of its cash flows and to decrease the probability of its bankruptcy. Which of the following objectives is management attempting to achieve through its use of risk management techniques? Check all that apply. Improve management's opportunities for earning bonuses and additional compensation Develop comparative advantage in hedging Improve its ability to attract lower-cost debt capital and expand its debt capacity