Describe Some of the Sources of Business Risk and Financial

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The Answer is Some of the observed variations in capital structures across industries reflect the differences in the nature of the industries themselves,i.e.,business risk.Similarly,intuition would suggest that firms with large capital requirements and stable cash flows (e.g.,electric utilities)are more likely to be willing to raise funds via large amounts of borrowing (financial risk).Alternatively,firms with lower tangible asset needs and highly uncertain cash flows (e.g.,small software companies)are more likely to employ equity.Thus,firms with lower business risk may tend to accept higher levels of financial risk and vice versa.Thus,firms can and do trade off financial and business risks.

Describe Some of the Sources of Business Risk and Financial

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