The Pecking Order States How Financing Should Be Raised

question 41

Multiple Choice

The pecking order states how financing should be raised. In order to avoid asymmetric information problems and misinterpretation of whether management is sending a signals on security overvaluation the firm's first rule is to:

• A) finance with internally generated funds as there is no market interaction.
• B) always issue debt then the market won't know when management thinks the security is overvalued.
• C) reduce asymmetry before any financing activity.
• D) increase the financial slack to reduce the reliance on internally generated funds.

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Definitions:

Strict Scrutiny

The most rigorous standard of judicial review used by courts to assess the constitutionality of laws, requiring a compelling government interest.

Interstate Commerce

Commercial transactions or transportation activities that cross state boundaries, regulated by federal government.

Means-Ends Test

A method of determining the constitutionality of a legislation by analyzing the relationship between the law's goals and the means chosen to achieve those goals.

Social Purpose

The intended positive impact on society or communities, often guiding the mission of organizations and projects.