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You are evaluating Firm A and Firm B's capital structure as part of consultant engagement. You have determined the following characteristics about each firm. Firm

You are evaluating Firm A and Firm B's capital structure as part of consultant engagement. You have determined the following characteristics about each firm.

Firm A Firm B
Sales Volatile Stable
Tax rate Low High
Operating Leverage High Low
Future Investment Opportunities Many Limited

If Firm A and B are the same in every other aspect, to which firm would you recommend carrying a higher excess borrowing capacity?

Group of answer choices

Firm A

Firm B

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