Question

In: Finance

A firm’s sales decline while it is locked into a number of fixed cost leases for...

  1. A firm’s sales decline while it is locked into a number of fixed cost leases for equipment. What is this an example of?

a. purchasing power risk

b. business risk

c. price risk

d. financial risk

Solutions

Expert Solution

Busines risk : when a company is unable to make adequate profits due to certain uncertainties. These uncertainties may be government imposed or human causes or any other natural factor.

Here, the sales are also declining as well as due to a company decision to lease equipements the firm also has to incur fixed costs.

So, the correct option is option B.

Purchasing power risk is the inability to buy more goods due to the inflation causing the rising prices and hence affecting the purchasing power.

Price risk is the fall in the prices of stocks due to the higher volatility.

The financial risk is the inability to payback the debts. The higher the debt, the higher would be the financial risk.

jeff jeffy answered 2 years ago
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