Question
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.
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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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