The Pecking Order Theory States That When External Funds Are

question 51

Multiple Choice

The pecking order theory states that when external funds are required,a firm should

• A)refund all monies pulled from internal sources with external funds.
• B)only issue equity securities after the firm's debt capacity is reached.
• C)never issue any convertible securities.
• D)issue convertible bonds prior to straight bonds.
• E)limit its debt-equity ratio to no more than 0.5.

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Definitions:

Outstanding Checks

Checks that have been issued and recorded in the account holder's ledger but have not yet been cashed or cleared by the bank.

Deposits In Transit

Funds that have been deposited by a company but have not yet been recorded by the bank, often resulting in discrepancies in bank reconciliation.

Note Receivable

A financial asset representing a written promise to receive a specific amount of money from a debtor at a future date or on demand.

Bank Service Charge

Fees charged by banks for the use of their services, such as account maintenance and wire transfer fees.