The Pecking Order Theory of Capital Structure Implies That

question 62

Multiple Choice

The pecking order theory of capital structure implies that:
I. Risky firms will end up borrowing more
II. Firms prefer internal finance
III. Firms prefer debt to equity when external financing is required

• A) I only
• B) II only
• C) II and III only
• D) III only

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Definitions:

Prepaid Property Tax

An expense that has been paid in advance for property taxes, recognized as a current asset until the period it covers arrives.

Bonds

Fixed income investments representing a loan made by an investor to a borrower, often corporate or governmental, which pays periodic interest payments.

Discount

A reduction from the full price or value of a good, service, or financial instrument.

Face Amount

The nominal value stated on the face of a financial instrument, such as a bond, that the issuer promises to pay at maturity.