The Idea That Managers Who Perceive the Firm's Equity Is

question 83

Multiple Choice

The idea that managers who perceive the firm's equity is underpriced will have a preference to fund investment using retained earnings,or debt,rather than equity is known as the:

• A)signaling theory of debt.
• B)lemons principle.
• C)pecking order hypothesis.
• D)credibility principle.

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Definitions:

Retained Earnings

Profit that is not distributed to the shareholders but is kept by the company for future investment or to pay off debt.

Dividend Income

Income received from owning shares of a company in the form of dividends.

Required Return

The minimum annual percentage earned by an investment that will induce individuals or companies to put their money into a particular project or investment.

Small Stock Dividend

A dividend paid in the form of additional shares, typically representing less than a 25% increase in outstanding shares.