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.
Answer and Explanation:
According to pecking order theory companies prefer internal financing to any other source. Among the external financing the companies prefer hybrid...
See full answer below.
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
fromChapter 15 / Lesson 1
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.