The Pecking-Order Theory of Capital Structure Suggests the Following Order

question 113

Multiple Choice

The pecking-order theory of capital structure suggests the following order of financing:

• A)internal financing, debt issue, equity issue.
• B)internal financing, equity issue, debt issue.
• C)debt issue, equity issue, internal financing.
• D)equity issue, internal financing, debt issue.

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Definitions:

Double Taxation

A taxation principle referring to income taxes paid twice on the same source of earned income, it can occur when income is taxed at both the corporate level and personal level.

Debt Obligations

The amount of money that a company or individual must repay to lenders, including both the principal and interest.

Distinct Legal Entity

Refers to a business that is legally considered separate from its owners, meaning it can own property, incur debts, and be sued independently.

Corporation

A legal entity that is separate and distinct from its owners, offering limited liability to its shareholders, and having the ability to own property, enter contracts, and sue or be sued.