A Market System Tends to Restrict Business Risk to Owners

question 85

Multiple Choice

A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?

• A) It encourages more people to become entrepreneurs.
• B) Firms have to pay more to attract inputs, as these inputs have to share the risk.
• C) Firms focus attention on prudent risk management, as it is profitable to manage risk.
• D) Income becomes more equally distributed.

---

Definitions:

Tax Treatment

This refers to the applicable rules and regulations that determine how different financial transactions and situations are taxed by governmental authorities.

Discretionary Accruals

Accounting adjustments that management can influence, often used to smooth out earnings or manipulate financial results.

Debt Covenants

Restrictions lenders put on borrowing agreements to preserve their interests by restricting certain actions of the borrower.

Accounting Changes

Modifications in an entity's accounting principles, estimations, or reporting entity that necessitate restatements or disclosures in financial statements to reflect these changes accurately.