Question

Firm X develops and licenses its designs to be produced by outside manufacturers. Firm Y develops and manufactures its own designs. If the total invested capital of the two firms is the same, which likely has more equity capital and why

Answer 1

Firm X

Step-by-step explanation:

In simple words, since the firm X is asset heavy they will have more equity capital in their accounts. On average, companies that adopt asset-light models achieve higher profits. Both provide the identical invested capital, but X has more equity wealth so it can have higher returns on investments.

Thus, from the above we can conclude that the correct answer is firm X.