Asked by Kenny Wayne on Jun 03, 2024
Verified
Which of the following statements is correct?
A) Generally, debt-to-total-assets ratios do not vary much among different industries, although they do vary among firms within a given industry.
B) Electric utilities generally have very high common equity ratios because their revenues are more volatile than those of firms in most other industries.
C) Prescription drug companies generally have high debt-to-equity ratios because their earnings are very stable, and therefore they can cover the high interest costs associated with high debt levels.
D) Wide variations in capital structures exist both between industries and among individual firms within given industries. These differences are caused by differing business risks and also managerial attitudes.
Debt-to-Total-Assets Ratios
A measure that indicates what proportion of a company's assets is financed through debt.
Equity Ratios
Equity ratios measure a company's financial leverage and are calculated by dividing total equity by total assets.
Debt-to-Equity Ratios
A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.
- Illustrate the principles of business risk, financial risk, and the factors influencing them.
- Detail the role that debt financing plays in impacting a firm's market value and the expense of its capital.
Verified Answer
Learning Objectives
- Illustrate the principles of business risk, financial risk, and the factors influencing them.
- Detail the role that debt financing plays in impacting a firm's market value and the expense of its capital.
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