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12-11A. (Assessing Leverage Use) Some financial data for three corporations are displayed below:

12-11A. (Assessing Leverage Use) Some financial data for three corporations are displayed below:
Industry
Measure Firm A Firm B Firm C Norm
Debt ratio 15% 20% 35% 25%
Times burden covered 9 times 11 times 6 times 9 times
Price/earnings ratio 10 times 12 times 5 times 10 times
a. Which firm appears to be excessively levered?
b. Which firm appears to be employing financial leverage to the most appropriate degree?
c. What explanation can you provide for the higher price/earnings ratio enjoyed by firm B as compared with firm A?

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