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Question
What is ‘Financial Risk?’ Why does it arise?
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Solution
Financial risk is a situation when a company is not able to meet its fixed financial charges. The fixed financial charges are the :-
- Interest that is to be paid on borrowed capital and
- Rate of dividend to be paid on preference capital.
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Besides the total amount of long-term finance required, what must a business identify?
What combination must a firm select when choosing between debt and equity?
How does equity compare with debt regarding repayment of capital?
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What financing choice is supported by strong cash flows?
Which financing source is favoured by a desire to retain control?
Which sequence correctly orders the seven factors affecting financing decisions?
