According to data collected on the capital structure of firms in 2005, which of the following categories of firms would you expect to have the lowest debt-equity ratio?
A)airlines
B)computer software manufacturers
C)automobile manufacturers
D)mortgage bankers

Question

Quizplus · Accepted Answer

Computer software manufacturers typically have high internal cash flows, which can be used to finance their operations and investments, thus resulting in a lower debt-equity ratio. In contrast, airlines, automobile manufacturers, and mortgage bankers require significant external financing, which tends to lead to higher debt-equity ratios. Computer software manufacturers typically have a high level of intangible assets and cash flows, which allows them to have a lower debt-equity ratio compared to other industries such as airlines, automobile manufacturers, or mortgage bankers.

According to Data Collected on the Capital Structure of Firms