Question

Business risk is affected by a firm's operations. Which of the following is NOT directly associated with (or does not directly contribute to) business risk? Demand variability. Sales price variability. The extent to which operating costs are fixed. The extent to which interest rates on the firm's debt fluctuate. Input price variability.

Answer 1

Answer: The extent to which interest rates on the firm's debt fluctuate

Explanation:

Business risk refers to the possibility of a business entity making a loss as a result of uncertainties associated with the firm. It includes all factor that could deter a firm from meeting its financial obligations. Factors like demand variability, sales price variability, operating cost and input price variability directly affect attainment of a firm's set financial objectives.

Answer 2

Answer:

The correct answer is letter "D": The extent to which interest rates on the firm's debt fluctuate.

Explanation:

Business risk refers to all the threats that could potentially represent losses for a firm as a result of its operations. Changes in consumer preferences, competition, government regulations, war, natural disasters, are a few examples of those threats.

The fluctuations of interest rates could bring losses to the company in front of increases but it could also represent a benefit when they decrease since companies would pay less for their debts. Therefore, the changes in interest rates are not direct business risks.