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Describe the risks involved in an organization's inability to recoup an investment.

Describe the risks involved in an organization's inability to recoup an investment.

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Answer #1

Answer : Liquidity Risk

If an organization unable to recoup an investment then it faces problem of liquidity or shortage of cash and it will increase the risk of bankruptcy because in such a situation an organization will not be able to pay interest and princiapal amount on its debts which results in sale of its available assets and organization become insolvent. It also reduces the profitability of firm as firm is unable to sell its investments whenever it wants so management of any organization have to accept lower price of investment if they are facing severe cash crunch.

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