Final answer:
SAG Co. encounters Financial Risk by using only common stock to finance its growth and acquisitions since it relates to the financing decisions and capital structure choices. Financing solely through equity can dilute ownership and alter management incentives, which are significant risks to consider along with the avoidance of interest payments associated with debt.
Step-by-step explanation:
The type of risk that SAG Co. encounters by using only common stock to finance its growth and acquisitions is Financial Risk. Financial risk refers to the additional risk a company's shareholders bear when the company uses debt as a means of financing. However, when a company uses only common stock, it might be perceived as avoiding financial risk associated with debt. Yet, since the question specifically asks about the risk related to issuing stock, the closest answer would be Financial Risk, as it highlights the risk of financing decisions and capital structure, which extends to the decision to use equity instead of debt.
Using common stock to finance growth means the company takes on less debt and avoids the burden of interest payments, but it also dilutes current ownership and involves sharing more control with new shareholders. The firm avoids the direct cost of servicing debt but also incurs an opportunity cost of higher cost of capital and potential for altered management incentives. Therefore, it is crucial to manage financial risk and maintain an optimal balance between different financing methods to have sustainable growth.