Risk & Return Assignment Example | Topics and Well Written Essays - 750 words

Risk & Return - Assignment ExampleThe term vexation stake is used to refer to the uncertainty associated with the future projections or expectations that company holds in relation to the returns from the business (Besley, 2008). This encounter is calculated either on the basis of assets or it may be calculated in terms of equity. In another(prenominal) words an organization tries to identify the return or loss it will face by investing a certain amount of currency in assets or the return the company will gain by investing money that it has obtained through the measure of equity financing. If an organization does not obtain money from external sources and only obtains money from internal shareholders, the business risk is calculated in terms of the risks associated with organizations own operations.The level of business risk an organization experiences is dependent on the stability of its operations. A business is said to have stable operation when organization experiences a ste ady flow of sales and purchases over a long period of time and there are lower chances that there will be any changes in these trends. A business is said to have unstable operations when the demand and supply of that business is difficult to predict or keeps on changing. For example a power planning monopoly is said to have lower risk of business since it is the only supplier and consumers do not have different options to choose from so its sales may not decline or fluctuate in the long run. A business that has stable operations is said to have lower business risk because it can easily meet its debt requirements in future through its sales and returns. On the other hand, a business that is unstable may not be able to meet its debt requirements on time and that is why such a business is said to have a higher business risk.An organizations financial is risk is denoted as the risk that an organization experiences other than its business risk and is