Biology Forums - Study Force

The management of James Bay Water Park is concerned about the volatility of the firm's net income. In order to reduce this volatility, they are planning on issuing new shares to repurchase debt and to enter into more fixed contracts with suppliers. The effect of these actions is likely to be

▸ a reduction of volatility of net income due to the reduction in financial leverage.

▸ a reduction of volatility of net income due to the reduction in financial leverage and increase in operating leverage.

▸ an increase in volatility of net income due to the reduction in financial leverage.

▸ The impact on the volatility of net income is unclear as the effects of the reduction in financial leverage and increase in operating leverage are opposite.

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