4. Understanding business and financial risks Aa Aa E 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: Red Hamster Manufacturing Company and Yellow Dinosaur Production Inc. It is your job to evaluate the relative business and financial risks of Red Hamster and Yellow Dinosaur. 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 Red Hamster's and Yellow Dinosaur's major attributes: Total assets Total debt Expected NOPAT Standard deviation of expected NOPAT Red Hamster Yellow Dinosaur Manufacturing Inc. Production Inc. $5,200,000 $5,200,000 $2,600,000 $1,040,000 $1,248,000 $1,248,000 $348,400 $223,600 Use the given financial data to indicate which firm has the higher degree of each type of risk. Which firm has more business risk? Which firm has more financial risk? O Red Hamster Yellow Dinosaur Yellow Dinosaur O Red Hamster