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2. Understanding business and financial risks The total risk in a firm is determined by evaluating the firm's business risk and financial risk. As an analyst, Olivia is comparing two nearly identical manufacturing firms: Lost Pigeon Manufacturing Company and Teal Camel Production Inc. It is your job to evaluate the relative business and financial risks of Lost Pigeon and Teal Camel The two firms have the same level of total assets and expected net operating profit after taxes (NOPAT), but they differ in two critical characteristics: total debt and the standard deviation of the expected NOPAT. The following table outlines some of Lost Pigeon's and Teal Camel's major attributes: Total assets Total debt Lost Pigeon Manufacturing Company Teal Camel Production Inc. $4,800,000 $4,800,000 $1,104,000 $2,160,000 $1,152,000 $1,152,000 $321,600 $206,400 Expected NOPAT Standard deviation of expected NOPAT Use the given financial data to indicate which firm has the higher degree of each type of risk. which firm has more business risk? Lost Pigeon Teal Camel The two firms have the same level of total assets and expected net operating profit after taxes (NOPAT), but they differ in two critical characteristics: total debt and the standard deviation of the expected NOPAT. The following table outlines some of Lost Pigeon's and Teal Camel's major attributes: Total assets Total debt Expected NOPAT Standard deviation of expected NOPAT Lost Pigeon Manufacturing Company Teal Camel Production Inc. $4,800,000 $4,800,000 $1,104,000 $2,160,000 $1,152,000 $1,152,000 $321,600 $206,400 Use the given financial data to indicate which firm has the higher degree, of each type of risk Which firm has more business risk? Lost Pigeon Teal Camel Which firm has more financial risk? Lost Pigeon Teal Camel

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