According to Pecking-Order Theory, Managers Will Often Choose to Finance

question 108

Multiple Choice

According to pecking-order theory, managers will often choose to finance with:

• A) new equity rather than debt, due to bankruptcy costs.
• B) debt rather than new equity, to avoid reduced share price.
• C) debt rather than retained earnings, to lower the WACC.
• D)new equity rather than debt, to strengthen EPS.

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Definitions:

Simplify

The process of altering an expression or equation to make it easier to work with, often by combining like terms or applying mathematical operations.

Multiply

The mathematical operation of scaling one number by another, representing repeated addition.

Simplify

The process of making an algebraic expression or equation easier to understand by reducing it to its most basic form.

Divide

A mathematical operation where the total quantity is divided into equal parts, and the result shows how many of those parts make up the original amount.