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Answer: Both the company's risk capacity and risk appetite will increase.
## Explanation When the company receives equity funding and switches to riskier projects: - **Risk capacity** refers to the maximum amount of risk an organization can assume given its financial resources and obligations. With equity funding, the company's financial resources increase, allowing it to take on more risk - thus **risk capacity increases**. - **Risk appetite** refers to the amount and type of risk an organization is willing to accept in pursuit of its strategic objectives. By deliberately switching to riskier projects, the company is demonstrating a **willingness to accept more risk** - thus **risk appetite increases**. Therefore, both risk capacity and risk appetite will increase. The equity funding provides the financial capacity to take on more risk, while the strategic decision to pursue riskier projects demonstrates an increased appetite for risk.
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A start-up company is undergoing a series of operational changes. The company expects to receive a round of equity capital to finance its growth strategies. A risk manager at the company is evaluating the risk of the company as well as the company's new capital structure. The manager notes that the company has decided to switch its business focus to riskier projects upon receiving the equity funding.
Which of the following is most likely correct for the manager to conclude once the funding completes and the new projects are undertaken?
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.
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