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QUESTION 1 (25 MARKS) (a) Elaborate on business risk and financial risk. Suppose Firm A has greater business risk than Firm B. Therefore, Firm A

QUESTION 1 (25 MARKS)

(a) Elaborate on business risk and financial risk. Suppose Firm A has greater business risk than Firm B. Therefore, Firm A should have a higher cost of equity capital. Justify. (9 marks)

(b) Gigi considered constructing a portfolio for herself, discuss which school of thought would be practical for her portfolio, the Traditional or Modern Portfolio Theory. (10 marks)

(c) Dividends are important, but at the same time, dividend policy is irrelevant. Justify. (6 marks)

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