Which of the Following Statements Is Consistent with the Pecking

question 33

Multiple Choice

Which of the following statements is consistent with the pecking order theory?

• A)A positive relationship exists between leverage and profitability.
• B)For any given level of investment,less profitable firms will borrow more than highly profitable firms.
• C)For any given level of investment,less profitable firms will borrow less than highly profitable firms.
• D)The level of debt in a firm's capital structure is dependent upon the number of tax shield substitutes.

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Definitions:

Shareholders' Point of View

The perspective of the owners of equity in a company, focusing on returns on investment, risk management, and the strategic direction of the company.

Bargain Purchase

A scenario in which a company acquires another company for a price less than the fair market value of its net assets.

Equity Financing

Raising capital through the sale of shares in a company, resulting in new shareholders and diluting the ownership stake of existing shareholders.

Notes Payable

written promissory notes in which the writer agrees to pay a certain amount of money, at a future date or on demand, to the holder of the note.