The risk that a company faces is not only determined by its external environment, but also by the company' own decisions.

Required:

a) In an explanation to the management, explain how the following items will impact the overall risk of a business:

i. variable cost

ii. fixed cost iii. Gearing

iv. interest cover

b) In an explanation to the board, discuss why a company may choose to obtain debt finance rather than raise new equity finance from the risk management perspective.