(Solution document) Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

*Electric utilities generally have very high common equity ratios because their revenues are more volatile than those of firms in most other industries.

*Drug companies generally have high debt-to-equity ratios because their earnings are very stable and, thus, they can cover the high interest costs associated with high debt levels.

*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.

*Since most stocks sell at or very close to their book values, book value capital structures are almost always adequate for use in estimating firms' costs of capital.

*Generally, debt-to-total-assets ratios do not vary much among different industries, although they do vary among firms within a given industry.


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