Which of the Following Statements Is CORRECT

question 40

Multiple Choice

Which of the following statements is CORRECT?

• A) Electric utilities generally have very high common equity ratios because their revenues are more volatile than those of firms in most other industries.
• B) 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.
• C) 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.
• D) 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.
• E) 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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Definitions:

General Electric

A multinational conglomerate corporation operating in sectors like aviation, power, healthcare, and renewable energy.

Restraint of Trade

Practices or agreements that restrict free competition in business and trade, often scrutinized under antitrust laws.

Sherman Act

A landmark federal statute passed in the United States to prohibit monopolies and promote competition.

Horizontal Merger

A business consolidation that occurs between firms operating in the same industry, often to create more efficient economies of scale.