Which of the Following Statements Is CORRECT

question 32

Multiple Choice

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)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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Definitions:

Unused Capacity

The available but unutilized production capability of a firm which could generate revenue if employed.

Fixed Overhead

Refers to the consistent, unchanging costs associated with running a business that do not vary with the level of production or sales.

Job-Order Costing

Job-order costing is an accounting method used to track costs and evaluate the profitability of individual jobs or batches.

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to products based on a selected activity base, such as machine-hours or labor-hours, calculated prior to the actual production.