The optimal capital structure for firms in cyclical industries should contain ________ than firms in stable industries.
A) more debt
B) less debt
C) an equal amount of debt
D) None of these options are valid. There is no relationship between the cyclical nature of an industry and optimal capital structure.

Question

Quizplus · Accepted Answer

Firms in cyclical industries face more variability in earnings due to the cyclical nature of their business. Therefore, they should have less debt to reduce the risk of financial distress during downturns. Stable industries, with more predictable earnings, can afford to take on more debt.

The Optimal Capital Structure for Firms in Cyclical Industries Should