Question: (Assessing Leverage Use) Some financial data for three corporations are displayed below: Industry MeasureFirm AFirm BFirm CNorm Debt ratio15%20%35%25% Times burden covered9 times11 times6 times9

(Assessing Leverage Use) Some financial data for three corporations are displayed below:

Industry

MeasureFirm AFirm BFirm CNorm

Debt ratio15%20%35%25%

Times burden covered9 times11 times6 times9 times

Price/earnings ratio10 times12 times5 times10 times

a.Which firm appears to be excessively levered?

b.Which firm appears to be employing financial leverage to the most appropriate degree?

c.What explanation can you provide for the higher price/earnings ratio enjoyed by firm B as compared with firm A?

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