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Answer: Both the company's risk capacity and risk appetite will increase.
The correct answer is D. Once the start-up company receives a round of equity funding, its capital base increases, which in turn enhances its risk capacity. This means the company can now afford to take on more risk, as it has more resources to absorb potential losses. Furthermore, the company's decision to switch its business focus to riskier projects indicates an increase in risk appetite. Risk appetite refers to the level of risk that a company is willing to accept in pursuit of its objectives. By choosing to undertake riskier projects, the company is demonstrating a higher willingness to embrace risk in order to potentially achieve greater returns. Therefore, both the company's risk capacity and risk appetite will increase after the funding is completed and the new projects are undertaken.
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A recently established company is currently undergoing significant operational changes, as it expects an influx of equity capital to fuel its expansion initiatives. The risk manager of the firm is evaluating the risk profile and the changing capital structure. It has been noted that, once the funding is received, the company plans to shift its focus towards higher-risk ventures. What is the most likely conclusion that the risk manager can derive after the capital is obtained and the new, riskier projects are set in motion?
A
The company's risk capacity will decrease and its risk appetite will increase.
B
The company's risk capacity will increase and its risk appetite will decrease.
C
Both the company's risk capacity and risk appetite will remain the same
D
Both the company's risk capacity and risk appetite will increase.