Rubberman Corporation is interested in how it compares with its competitors in the same industry.

a. Taking each of these variables, explain at an intuitive level whether you would expect XYZ Corporation to have more more or less debt than its competitors and why.

b. You have also run a regression of debt/equity ratios against these variables for all the firms on the New York Stock Exchange and have come up with the following regression equation:
D/E = .10 - .5 (Variance in EBITDA) + 2.0 (EBITDA/MV) + .4 (Tax rate) + 2.5 (R&D/Sales)
(All inputs to the regression were in decimals, i.e. 20% was inputted as .20 ....)
Given this cross-sectional relationship, what would you expect XYZ's debt/equity ratio to be?

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XYZ Corporation Other Competitors Debt/Equity Ratio 50% 25% Variance in EBITDA 20% 40% EBITDA/MV of Firm 25% 15% Tax Rate 40% 30% R&D/ Sales 2% 5%