The Pecking Order Theory: a Firm Wishes to Undertake a Project

question 50

Multiple Choice

The pecking order theory: A firm wishes to undertake a project that costs $150mm. It currently has $10mm in cash on hand and believes that it can raise $75mm in debt and $100mm in equity if needed. According to the pecking order theory of the capital structure, what percent of the project will be financed by debt?

• A) 0%
• B) 26.67%
• C) 50%
• D) None of the above

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Definitions:

Customer

The recipient of a good, service, product, or idea, obtained from a seller, vendor, or supplier for a monetary or other valuable consideration.

Sale Price

The final amount at which a product or service is sold to consumers, often after discounts or adjustments.

Total Surplus

The sum of consumer surplus and producer surplus in a market, representing the total benefits to society from the production and consumption of goods or services.

Sale Price

The final price at which an item or service is sold, often after discounts or negotiations.