Refer to the observed capital structures given in Table 15.3 of the text. What do you notice about the types of industries with respect to their average debt–equity ratios? Are certain types of industries more likely to be highly leveraged than others? What are some possible reasons for this observed segmentation? Do the operating results and tax history of the firms play a role? How about their future earnings prospects? Explain.

Table 15.3

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DEBT* AS A PERCENTAGE OF THE MARKET VALUE OF EQUITY AND DEBT (INDUSTRY MEDIANS) High Leverage Radio and television broadcasting stations 59.60 Air transport 45.89 Hotels and motels 45.55 Building construction 42.31 Natural gas distribution 33.11 Low Leverage Electronic equipment 10.58 Computers 9.53 Educational services 8.93 Drugs 8.79 Biological products 8.05