Question

Capital structures vary among firms in the United States and around the world. Relationships, attitudes, tax codes, and accounting differences contribute to some of the differences. As U.S. firms become increasingly involved in worldwide operations, they must become increasingly aware of worldwide conditions, and they must be prepared to adapt to conditions in the various countries in which they do business. True or False: Indicate whether each of the following statements about the various capital structures is true or false. Statements True False a. In general, drug and biotech companies do not use much debt. b. In general, utilities do not use debt. c. U.S. firms have more equity and less debt than Germany or Japan. d. A conservative CEO may be less inclined to finance with debt.

Answer 1

Answers 1:

True: US firms must invest efforts and resources to understand the 'nuances' which exist in other Capital Structures outside of its geographical space.

Accounting-wise, the United States of America still uses the Generally Accepted Accounting Principles while as of 2018 about 120 countries around the world already switched to International Financial Reporting Standards (IFRS).

Answer 2

False: Many of the Drug and Biotech companies in the world are teetering under the burden of debts. Many sources hold that some of them are likely to declare bankruptcy soon.

Answer 3

False: Many utility companies, especially in Africa, have very poor infrastructure which requires very heavy investments to fix. Sometimes, these countries such as Nigeria and Kenya rely on external debts such as those from the World Bank to be able to make any meaningful progress.

Answer 4

False: According to World Bank statistics, the US has about 2 trillion in external debts making it the country in the world with the highest external debt.

 

Answer 5

True: If a CEO is too confident about their company, they'll tend to be very conservative with debt. That is, they'd be averse to taking on debt financing.

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