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.

Question

Quizplus · Accepted Answer

This statement correctly acknowledges that there are wide variations in capital structures both between industries and among individual firms within those industries. These variations are caused by factors such as differing business risks and managerial attitudes. Choice A is incorrect because debt-to-total-assets ratios can vary significantly between industries, especially if one industry relies heavily on debt financing (e.g. airlines) and another industry favors equity financing (e.g. technology). Choice B is incorrect because electric utilities are known for having high debt ratios, not high common equity ratios. Finally, choice C is incorrect because prescription drug companies are not necessarily known for having high debt-to-equity ratios; this may vary depending on the company and its specific capital structure.

Which of the Following Statements Is Correct