The Pecking Order States How Financing Should Be Raised

question 29

Multiple Choice

The pecking order states how financing should be raised.In order to avoid asymmetric information problems and misinterpretation of whether management is sending a signal on security overvaluation the firm's first rule is to:

• A)issue convertible debt prior to straight debt to save funds.
• B)use short-term debt to its maximum available limit prior to issuing long-term debt.
• C)issue new equity first in order to retain internal funds and avoid interest costs.
• D)issue new debt prior to new equity.
• E)use internal financing prior to external financing.

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Definitions:

Tax Increase

An escalation in the statutory rate imposed by the government on income, goods, services, or transactions.

Tariff Rates

Taxes imposed on imported goods and services, which can affect the price and availability of those goods and services.

Expansionary Policies

Economic strategies implemented by a government or central bank to spur economic growth, typically through increased government spending or reduced taxes.

Economic Downturn

A period of reduced economic activity characterized by declining GDP, unemployment, and falling prices.