(Assessing leverage use) Financial data for three corporations are displayed below

1. Which firm appears to be excessively leveraged?(Select the best choice below.)

A. Firm A

B. Firm B

C. Firm C

2. Which firm appears to be employing financial leverage to the most appropriate degree?(Select the best choice below.)

A. Firm A

B. Firm B

C. Firm C

3. What explanation can you provide for the higher price-earnings ratio enjoyed by firm B as compared with firm A?(Select the best choice below.)

A. Firm B employs financial leverage to the extremely high degree and investors must perceive it to have higher growth potential and/or lower risk compared to firm A.

B. Firm B employs financial leverage to the lower than average degree and investors must perceive it to have lower growth potential and/or higher risk compared to firm A.

C. Firm B employs financial leverage to the most appropriate degree and investors must perceive it to have higher growth potential and/or lower risk compared to firm A.

D. Firm B employs financial leverage to the most appropriate degree and investors must perceive it to have lower growth potential and/or higher risk compared to firm A.

MEASURE FIRM A FIRM B FIRM C INDUSTRY NORM Debt ratio 25% 30% 45% 25% Times interest earned 12 14 11 13 Price-earnings ratio 13 15 10 14