Which of the Following Statements Is CORRECT

question 37

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:

Common-Size Financial Statements

Financial statements that present all line items as percentages of a common base figure, facilitating comparison across periods or companies.

Actual Transactions

The completed deals or exchanges of goods, services, or financial instruments between parties.

Financial Ratios

Quantitative measures derived from financial statements used to assess a company's performance, financial health, and profitability.

Overview Ratios

Financial metrics that provide a summary or overview of a company's financial health, often used in analyzing business performance.