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In the table below, you are provided with data on some key financial and market variables for two distinctly different industries, Energy and Pharmaceuticals, over

In the table below, you are provided with data on some key financial and market variables for two distinctly different industries, Energy and Pharmaceuticals, over the period 1990-2011. All variables are measured as averages over the entire period. As shown in the table, on average, energy firms appear to have maintained a much higher debt/asset ratio than those in the pharmaceutical industry. Use the information in the table and established capital structure theories to explain why these industries use different capital structures.

Variables

Energy

Pharmaceuticals

Market/Book

2.0068

4.2323

Assets ($M)

38723.74

4500.81

Total Debt/Asset

0.587

0.2567

Equity Beta

.75

1.15

R&D/Sales

0.0124

0.1048

Sales Growth

0.0636

0.2125

Cash/Total Asset

0.0917

0.2799

Return on Asset

0.1225

0.2617

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