which statement is correct

True or False: Firms operating in more price-competitive Industries, or exhibiting lower levels of market power generally exhibit lower levels of business risk, all other things being equal. True False Statement 1 When its earnings are increasing the use of greater levels of debt capital in a firm's capital structure magnifies the positive return earned by the firm's shareholders beyond that earned by the shareholders of an otherwise identical unlevered firm, Statement 2 One result associated with a firm's use of increased financial leverage is an increase in the firm's risk of insolvency. As an analyst, Olivia is comparing two nearly identical manufacturing firms: Purple Panda Manufacturing Company and Blue Mouse Production Inc. It is your job to evaluate the relative business and financial risks of Purple Panda and Blue Mouse. The two firms possess the same value of total assets, and earn identical levels of expected operating profit (as measured by the firm' earnings before interest and taxes, or EBIT), but they differ in two critical characteristics: their amount of total debt and the standard deviation of their expected eart The following table describes several of Purple Panda's and Blue Mouse's major attributes: Total assets Purple Panda Manufacturing (Dollars) 4,400,000 2,420,000 1,056,000 171,600 Blue Mouse Production (Dollars) 4,400,000 880,000 1,056,000 255,200 Total debt Expected EBIT Standard deviation of expected EBIT Use the given financial data to indicate which firm has the higher degree of each type of risk. Which firm has more business risk? Blue Mouse Purple Panda Use the given financial data to indicate which firm has the higher degree of each type of risk. Which firm has more business risk? Blue Mouse O Purple Panda Which firm has more financial risk? O Purple Panda Blue Mouse