Fundamentals of Financial Management (MindTap Course List)
14th Edition
ISBN: 9781285867977
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
Fundamentals of Financial Management (MindTap Course List)
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 hedging and how is it different from diversification? If a firm needs to manage its risk, will you recommend diversification or hedging? Why?arrow_forwardWhy use a business risk approach?arrow_forwardUsing examples, explain how firms are affected by both systematic and firm-specific risk. What is the risk premium?arrow_forward
- Distinguish 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_forwardwhat 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_forward
- Which of the following investment strategies involves generating a higher expected rate of return through increasing risk? a. Leverage b. Value at risk c. Diversifying d. Hedging riskarrow_forwardExplain if the operational risk is considered a risk or uncertainty? Why? If it is a risk, how can we quantify it? Please provide an example. In Investment, why do you need to quantify every risk?arrow_forwardQUESTION 2 For which type of risk do you get rewarded with a higher expected return? a. Firm-specific risk Ob. Total risk C. Diversifiable risk d. Unknown е. Systematic riskarrow_forward
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