13 - 13 Variations in capital structures Aa Aa a Capital...

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Unformatted text preview: 13. Variations in capital structures Aa Aa a Capital structures vary among firms in the United States and around the world. Relationships, attitudes, tax codes, and accounting differences contribute to some of the differences. As U.S. firms become increasingly involved in worldwide operations, they must become increasingly aware of worldwide conditions, and they must be prepared to adapt to conditions in the various countries in which they do business. True or False: Indicate whether each of the following statements about the various capital structures is true or false. Statements The least-leveraged industries have the highest TIE ratios. U.S. firms have more equity and less debt than Germany or Japan. Management attitude influences the amount of debt that a firm takes on. I l n general, utilities do not use debt. Explanation: Close A The least-leveraged industries have the highest TIE ratios, because they have less debt and thus less interest to cover with earnings. Utilities use large amounts of debt, because their fixed assets make good securities and their stable sales make it safe for them to carry more debt than a firm with more business risk. Banks in Germany and Japan are very involved in the operations of the corporations that they lend to; they often hold an ownership interest in them, so they are more accommodating than U.S. bondholders when the firms face financial stress. For this reason, U.S. firms have more equity and less debt than Germany or Japan. Some managers are more aggressive than others when using debt, so management attitude influences the amount of debt that a firm takes on. Flash Player WIN 18,0,0,209 Q3 3.32 (5) 2004-2013 Aplia. All rlghts reserved. , _ . (5‘ 2013 Cengage Learning except as noted. All rlghts reserved. O" Pall-“5: ‘1‘ Save 8' Contlnue ...
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