FIN 534 RANK Change The World /fin534rank.com FIN 534 RANK Change The World /fin534rank.com | Page 149

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. Drug companies (prescription, not illegal!) 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.
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.
e. 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.
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FIN 534 Week 8 DQ 1
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