Business risk is that portion of a firms unsystematic risk that is caused by the prevailing environment of the business. Put another way, business risk is a function of operating conditions being faced by a firm. These risks influence the operating income of a firm and consequently the potential of the firm to pay dividends to shareholders.
Business risks can be internal or external to the firm. Internal business risk is associated with the internal environment of the firm. These include factors such as fluctuations in sales, research and development, personnel, fixed cost and more. External business risks are associated with circumstances beyond a firms control. Each firm must deal with specific external factors that may be unique and peculiar to its industry. Some possible external risks are fluctuations in the economy, demographic changes, shifts in government policies, regulation and taxes, and similar.
According to the text, Every business enterprise will have its own unique attributes and risks, which can be incorporated into the rate of return. Using the company that you chose and wrote about last week, discuss the unique attributes and risks specific to that company, expounding upon how those factors may impact its required rate of return.Order Now