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Maintaining a higher debt ratio

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Question: Consolidated Power is a regulated electric utility which has equity with a market value of $ 1.5 billion and debt outstanding of $ 3 billion. A consultant notes that this is a high debt ratio relative to the average across all firms, which is 27%, and suggests that the firm is overlevered.

a. Why would you expect a electric utility to be able to maintain a higher debt ratio than the average company?

b. Does the fact that the company is a regulated monopoly affect its capacity to carry debt?

Reference no: EM131689987

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