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According to the Pecking Order Hypothesis, what is the sequence of sources of funds that a firm...

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According to the Pecking Order Hypothesis, what is the sequence of sources of funds that a firm will typically access when obtaining capital for additional investments:

a) Equity Issue, Debt Issue, Retained Earnings.

b) Retained Earnings, Debt Issue, Equity Issue.

c) Debt Issue, Retained Earnings,

d) Equity Issue. Debt Issue, Equity Issue, Retained Earnings.

e) It is irrelevant since WACC is independent of capital structure.

Pecking order theory of capital:

Pecking order theory lays down the order of preference of capital type for a firm when it wants to fund its operations and assets. The pecking order theory also explains an opposite relationship between profitability and debt ratio.

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According to pecking order theory companies prefer internal financing to any other source. Among the external financing the companies prefer hybrid...

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Capital Structure & the Cost of Capital

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Chapter 15 / Lesson 1
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In this lesson, we'll define capital and a firm's capital structure. We'll also discuss the costs associated with each component in the capital structure and learn about the concept of risk and return.


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