Bundle: Fundamentals of Financial Management, 14th + MindTap Finance, 1 term (6 months) Printed Access Card
14th Edition
ISBN: 9781305777118
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 18, Problem 1Q
Summary Introduction
To discuss: The seven reasons for risk management could increase the value of a firm.
Introduction:
Risk management is a technique used in business to evaluate the financial risks associated by it. It helps to identify certain procedures to avoid or minimize their impact in the business.
Expert Solution & Answer
Explanation of Solution
The seven reasons for risk management can increase the value of a firm are as follows:
- The risk management techniques allow the corporates to increase their use of company’s debts.
- Maintain the company’s optimal capital budget over time.
- Decrease costs and risks of borrowing through swaps options.
- Higher tax rates are reduced that result from fluctuating earnings.
- Costs related with the financial distress are reduced.
- Initiate compensation systems, which offer compensation for all managers mainly for accomplishing targeted earnings stability.
- Use their
comparative advantages in hedging comparative to the hedging ability of individual investors.
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Chapter 18 Solutions
Bundle: Fundamentals of Financial Management, 14th + MindTap Finance, 1 term (6 months) Printed Access Card
Ch. 18.A - Prob. 1QCh. 18.A - Prob. 1PCh. 18.A - Prob. 2PCh. 18 - Prob. 1QCh. 18 - Why do options typically sell at prices higher...Ch. 18 - Discuss some of the techniques available to reduce...Ch. 18 - Prob. 4QCh. 18 - Prob. 5QCh. 18 - Give two reasons stockholders might be indifferent...Ch. 18 - OPTIONS A call option on Bedrock Boulders stock...
Ch. 18 - OPTIONS The exercise price on one of Boudreaux...Ch. 18 - OPTIONS Which of the following events are likely...Ch. 18 - BLACK-SCHOLES MODEL Assume that you have been...Ch. 18 - Prob. 5PCh. 18 - Prob. 6PCh. 18 - OPTIONS Audrey is considering an investment in...Ch. 18 - Prob. 8PCh. 18 - BINOMIAL MODEL The current price of a stock is 50....Ch. 18 - Prob. 11IC
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Similar questions
- Explain the equation HxP=R Name each component What is the significance of each component? How the equation is used in Risk Management and in developing the risk matrix? How the outcome of this formula will impact an agencies appetite for risk? Is that risk appetite a constant, and what factors may go into the modification of that agency risk appetite?arrow_forwardExplain how the concepts of risk and return drive invesments in business worldarrow_forwardWhat is hedging and how is it different from diversification? If a firm needs to manage its risk, will you recommend diversification or hedging? Why?arrow_forward
- Question 6: How can a firm assess risk and how can internal controls systems help minimize the financial risk?arrow_forwardDistinguish between beta (i.e., market) risk, within-firm (i.e., corporate) risk, and stand-alone risk for a potential project. Of the three measures, which is theoretically the most relevant, and why?arrow_forwardQuestion # 6 The total risk of a firm is determined by the combined effect of operating and financial leverage. Justify this statement with proper reasoning.arrow_forward
- what are some pros and cons of investing in risk management softwares ?arrow_forwardDescribe a strategy development as you try to grow your money. Remember to mention day trading, short and long-term investments, risk- averse, risk tolerance, etc.arrow_forwardWhat are determinants of business risk? Check all that apply: Demand variability Financial leverage Competition and the ability to raise prices Input cost variability Operating leveragearrow_forward
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