Question
n Activity 6.2.4 you were exposed to the Cost of Capital by Sector (http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/wacc.htm). One of the columns provides the percentage of debt financing by
n Activity 6.2.4 you were exposed to the Cost of Capital by Sector (http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/wacc.htm). One of the columns provides the percentage of debt financing by industry (D/(D+E)). There are several industries with low percentages of debt financing. Take a look and identify some with a low percentage of debt financing and do the same with firms that have a high percentage of debt financing (the average according to the data in the link is about 42 percent). Note: Do not use the banking financial services industries. Based on the types of firms that use a small amount of debt and those that use higher amounts of debt, what can you conclude? What is it about the firms that use low amounts of debt? More debt would lower their cost of capital so what is holding these firms back form taking on more debt? You need to think a little, do not simply say the firms with low debt are all in industry x or industries similar to x. That is obvious, what is the economic intuition? What is the story?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started