Read the following passage and answer the question.

Background:

Green Innovations Ltd. is an emerging company specializing in renewable energy solutions, such as solar panels and wind turbines. The company has seen steady growth in its first few years, and management is now focusing on long-term financial strategies to fuel further expansion. 

Green Innovations plans to invest $15 million in new manufacturing facilities and R&D for product innovation in the upcoming fiscal year. The company's CFO is working on a financial plan to ensure the funds are allocated efficiently while maintaining a healthy cash flow. The company has also forecasted a 20% increase in sales due to growing demand for sustainable energy solutions.

Currently, Green Innovations is reinvesting its profits into growth and diversification projects. It is allocating fim's capital to different projects with long term implications for the business.

The company's current composition of capital consists of 60% equity and 40% debt. The management is considering adjusting the mix to increase debt in order to take advantage of low-interest rates.

Green Innovations is focused on minimizing its cost of capital to ensure that future investments yield strong returns while keeping debt levels manageable.

The management is considering adjusting the mix to increase debt in order to take advantage of low-interest rates, but this will increase the...................risk for the company.

Financial risk

The correct answer is option 2- Financial risk.

The management is considering adjusting the mix to increase debt in order to take advantage of low-interest rates, but this will increase the Financial risk  for the company.

When a company increases the proportion of debt in its capital structure, it takes on more financial obligations, such as interest payments and loan repayments. This leads to an increase in financial risk, which is the risk of the company not being able to meet its financial commitments, especially during periods of low revenue or economic downturns.