1. For each of the following scenarios, explain whether the situation describes financial risk or business risk. Explain your answers to each scenario.
A. A pharmaceutical company has developed a new cancer treatment drug that has a much higher success rate than other drugs currently in the market and has a potential to triple the company's profits. However, the FDA has expressed concern about some side-effects and it is not clear if the FDA will approve the drug.
B. An airline has an EBIT of $100 million per year. However, they also have a huge amount of debt and pay $97 million per year in interest. Their EBIT is relatively stable but tends to go up or down by $5 million or so each year depending on the economy.
C. A basketball franchise earns an EBIT of $50 million a year when their team has a winning year. However, they only earn $10 million when their team has a losing year.