- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 6. Capital Structure
- Subject 2. Factors Affecting Capital Structure
CFA Practice Question
Which of the following statements is false?
B. Firms in the bio-tech industry tend to use a tremendous amount of debt financing.
C. We might expect to see low-risk industries with high levels of debt. For example, firms in the electric utility industry use a great deal of debt financing.
A. Firms within a given industry often tend to have similar capital structures.
B. Firms in the bio-tech industry tend to use a tremendous amount of debt financing.
C. We might expect to see low-risk industries with high levels of debt. For example, firms in the electric utility industry use a great deal of debt financing.
Correct Answer: B
Firms in the bio-tech industry tend to use a very little debt financing.
User Contributed Comments 7
| User | Comment |
|---|---|
| kalps | As they have no material assets - mainly euqity finance |
| rockeR | Like Microsoft |
| setmefree | their business is riskier, cuz future earnings are more unpredictable than, say a low growth industry. so if they issue debt, it would be very expensive, due to higher risk. thus they avoid using it, or unable to afford it. |
| tanyak | p.131 - of the Corporate Finance and Portfolio Management Text - "whereas operating costs are similar among companies in the same industry, competitors may decide on different capital structures" This may make A a false statement? However, notice the "often" in A: A is still a correct statement. |
| bmeisner | A is definitely a correct statement. Companies in the same industries typically have similar stabilities of cash flows so this leads to having similar optimal amounts of debt. |
| 2014 | Thanks for page number |
| johntan1979 | MSFT latest qtr D/E ratio = 0.17 |