Which of the Following Is Correct

question 14

Multiple Choice

Which of the following is correct?

• A) Generally,debt to total assets ratios do not vary much among different industries although they do vary for firms within a particular industry.
• B) Utilities generally have very high common equity ratios due to their need for vast amounts of equity supported capital.
• C) The drug industry has a high debt to common equity ratio because their earnings are very stable and thus,can support the large interest costs associated with higher debt levels.
• D) Wide variations in capital structures exist between industries and also between individual firms within industries and are influenced by unique firm factors including managerial attitudes.
• E) Since most stocks sell at or around their book values,using accounting values provides an accurate picture of a firm's capital structure.

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Definitions:

Minimum Lease Payments

The lowest amount that a lessee is obligated to pay over the lease term, excluding costs for services such as insurance and maintenance.

Operating Lease

An operating lease is an agreement allowing someone to use an asset without ownership, typically for shorter periods, and expenses are recorded as operating expenses.

Implicit Interest Rate

The interest rate that can be inferred from the terms of a lease or loan, reflecting the true cost of borrowing when the interest rate is not explicitly stated.

Straight-line Method

A depreciation technique that allocates an equal amount of the asset's cost to each year of the asset's useful life.