Bundle: Fundamentals of Financial Management, Loose-leaf Version, 14th + LMS Integrated for MindTap Management, 2 terms (12 months) Printed Access Card
14th Edition
ISBN: 9781305777217
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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Students have asked these similar questions
Examine the main problems in risk management. Discussion What role does risk management play in formulating a company's strategy?
Discuss how financial risk management enables a firm to increase its value
a. Outline the three main forms of business organisation and critically discuss the benefits and drawbacks associated with each.b. Discuss and critically compare sensitivity analysis and scenario analysis as means of estimating a project’s risk.c. Clearly explain the difference between systematic risk and non-systematic risk and discuss the relationship between beta and the expected rate of return on an investment.
Chapter 18 Solutions
Bundle: Fundamentals of Financial Management, Loose-leaf Version, 14th + LMS Integrated for MindTap Management, 2 terms (12 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
- What is the difference between systematic and unsystematic risk?ii. What is strategic business plan and why it is important for the success of a firm? Explain inyour own words.iii. Explain for which types of projects, a detailed capital budgeting analysis is required and why?arrow_forwardPick any large company and describe three risks that it faces and how it responds to those risks.arrow_forwardList and explain some reasons companies might employ riskmanagement techniques.arrow_forward
- Pick three industries and describe how the risks faced by companies within those industries caninfluence their planning, controlling, and decision-making activities.arrow_forwardExplain how the concepts of risk and return drive invesments in business worldarrow_forwardDescribe how Enterprise Risk Management adds more value to an organization than Silo Risk Management.arrow_forward
- how a firm might use a hedging to reduce risk in its business? please include examplesarrow_forwardIn theory, should a firm be equally concerned with stand-alone,corporate, and market risk? Would your answer be the same if wesubstituted “In practice” for “In theory”? Explain your answersarrow_forwarda)discuss the following risks: operational risk, model risk, liquidity risk, accounting risk, legal risk, tax risk, regulatory risk, settlement (Herstatt) risk, systemic risk b)compare and contrast view-driven risk management and needs-driven risk management. c)identify the key players in the risk management industry, and discuss how risk management requirements and practices differ amongst these key players. d)discuss some important organizational considerations for an effective risk management system. e)explain what is meant by enterprise risk management, and compare and contrast it with decentralized risk management.arrow_forward
- Explain the principle of increasing financial risk and why it is important when assessing the financial and economic merits of a businessarrow_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_forwardEvaluate the various risk financing mechanisms available to businesses.arrow_forward
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