Risk Management & Mitigation Flashcards
7 cards from real BCA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management & Mitigation flashcards as text
A business appraiser is evaluating a company heavily dependent on a single customer accounting for 65% of revenue. Which risk category best describes this?
Answer: Customer concentration risk
Customer concentration risk arises when a significant portion of revenue depends on one or few clients, making the business vulnerable to loss of that relationship.
Which mitigation strategy involves spreading business activities across multiple industries or product lines to reduce exposure?
Answer: Diversification
Diversification reduces risk by ensuring that a downturn in one area does not devastate the entire business.
In a BCA context, 'key person risk' is best mitigated by which of the following?
Answer: Purchasing key-man life insurance and cross-training staff
Key-man insurance provides financial protection and cross-training ensures operational continuity if a critical individual departs or dies.
When a buyer acquires a business and requires the seller to remain for a transition period, this arrangement primarily mitigates which risk?
Answer: Key person / management continuity risk
An earnout or transition agreement keeps critical knowledge and relationships in place, reducing the risk associated with loss of the prior owner.
A company operates entirely in one geographic region. From a risk management standpoint, an appraiser would most likely:
Answer: Apply a geographic concentration premium to the discount rate
Geographic concentration increases risk exposure to regional economic downturns, natural disasters, and local regulatory changes, warranting a higher discount rate.
Which of the following best describes a 'risk transfer' strategy in business risk management?
Answer: Shifting financial consequences to a third party such as an insurer
Risk transfer moves the financial impact of a risk to another party, most commonly through insurance policies or contractual indemnifications.
In business valuation, an unusually high accounts receivable aging schedule primarily signals which risk?
Answer: Credit and collection risk
Slow-paying customers or uncollectable receivables indicate credit risk that can threaten cash flow and working capital adequacy.