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In Module 6, you were exposed to the Cost of Capital by Sector (NYU STERN): https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/wacc.htm

One of the columns provides the percentage of debt financing by industry (D/(D+E)). There are several industries with low percentages of debt financing. Take a look and identify some with a low percentage of debt financing and do the same with firms that have a high percentage of debt financing (the average according to the data in the link is about 42 percent).

Do not use the banking financial services industries.

-Based on the types of firms that use a small amount of debt and those that use higher amounts of debt, what can you conclude?

-What is it about the firms that use low amounts of debt?

-More debt would lower their cost of capital so what is holding these firms back from taking on more debt? You need to think a little. Do not simply say the firms with low debt are all in industry X or industries similar to X; that is obvious. What is the economic intuition? What is the story?

Reference no: EM132645936

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