Question

Suppose that B2B has a capital structure of 37 percent equity. What is the remaining percentage likely to be composed of?

a) Debt
b) Preferred stock
c) Retained earnings
d) Common stock

Answer 1

The correct answer is A .The remaining 63 percent of B2B's capital structure is likely composed of debt and possibly some preferred stock, with debt being a very common component.

Step-by-step explanation:

If B2B has a capital structure of 37 percent equity, the remaining 63 percent would likely be composed of debt, preferred stock, or retained earnings.

Common stock is a component of equity and thus would not be part of the remaining percentage.

Given that retained earnings are also part of equity, we can exclude it. So, the remaining percentage is most likely composed of debt and possibly some preferred stock if the company has issued any.

When companies finance their operations, they typically rely on a mixture of these instruments, with debt being a very common component because of its tax-deductible interest payments.